Gold, the coiled spring. Debt concerns in France and the UK

Comments from Jonathon Pain - “The Pain Report”:

Let’s talk about the coiled spring.

Now or Never.

Now is the time for gold to make an assault on $3,500 — and don’t forget the 10 cents!

The all-time high being $3,500.10 on 22 April 2025.

One of the reasons why gold is about to make new highs is what is happening in France and the UK.

This week the French Prime Minister gave an impassioned plea to the French people that they needed to tighten their fiscal belts. The French Finance Minister then followed up with the astonishing claim that France might need to seek a bailout from the IMF. Prime Minister François Bayrou has called for a government vote of confidence scheduled for 8 September, in a last desperate attempt to pass his austerity budget. You may remember that I rang the alarm bell last year about the French fiscal crisis. The French fiscal arithmetic is simply horrendous. Total government debt of 3.3 trillion euros. The level of French debt has risen by 2 trillion euros over the past 20 years. Debt/GDP of 114%. A budget deficit/GDP ratio of 5.8%. Debt-servicing costs are skyrocketing, with interest costs this year near 66 billion euros and projected to exceed 100 billion euros within 4 years.

What about the UK?

Well, they’re in a fiscal pickle too.

Recently, the highly respected economist Jagjit Chadha, who was until recently the head of the National Institute of Economic and Social Research, warned that a 1976-style fiscal crisis is now “a real and present danger.” You may recall that in 1976 the UK received a bailout from the IMF.

Who would go first? The UK or France?

Both countries, in my view, would implement some form of yield-curve control.

Yes, in the case of France, this could get messy, with the ECB having to perform all kinds of verbal and monetary gymnastics to undertake such an option. Then again, they have done it before. I have no idea of the time frame, and don’t know if it will happen gradually or suddenly.

It does, however, look like the French government will fall on 8 September, and we will then see how the market dominoes fall. It will be particularly interesting to see how Japanese investment institutions will respond, as they are the largest foreign holders of French government debt.

In the meantime, they are having to deal with a surge in yields on their Japanese government bond holdings.