France is on the brink of falling into a deflationary vortex as manufacturers cut prices to maintain market share. Latest statistics confirm that core inflation in France fell to -0.2% in November.

The situation in the rest of Europe is not much better with Greece, Portugal, Spain, Holland, Germany, Italy, Poland and the Baltic states starting to show signs of deflation.

According to RBS analyst, Andrew Roberts, the European Central Bank is presiding over a deflationary disaster.

“They need to act fast and aggressively or else markets will start to attack Italian debt. Italy’s nominal GDP is falling faster than their borrowing costs and that is pushing them towards a debt spiral,” he added.

Head of the Italian Central Bank added, “any further falls in prices at this stage could have extremely grave consequences for economies with very high public debt levels, such as Italy”.

Previously Head of the ECB, Mario Draghi, vowed to do everything in his power to stop deflation taking hold including the implementation of a full blown quantitative easing program. Historically gold outperforms traditional asset classes when Central Banks expand their balance sheets and aggressively expand the money supply.