After a week of mostly positive news for the economy, the dollar is relatively stronger, pushing down the price of precious metals. Gold opened the week at $1700 and is closing the week down by about $40.
by Robert Davis. Email Robert.
The size of China’s trade deficit took markets by surprise this morning. Its deficit of $31.48 billion is the largest in 12 years. Economists had expected the gap to grow as a result of seasonality, but not by as much as it did. Overall, this points to a weakening Chinese economy. The slowdown is happening faster than the Chinese government expected. Senior Chinese officials are hinting that the country’s currency may not appreciate as quickly as it has the past couple of years. It is also expected that bank lending will be encouraged in order to push more liquidity into the system.
The world’s largest banks are looking more favorably at the euro. Bloomberg news surveyed more than 50 strategists and reported that their median estimate predicts a stronger euro for the second and third quarters. A stronger euro could be positive news for Gold prices. The rising euro should lower the U.S. dollar, and the price of Gold typically would go up as a result.
After this week’s Federal Reserve meeting came and went without any hints of future quantitative easing, the price of Gold declined significantly in Tuesday trading, ending the day below $1,700 per ounce. Gold historically moves opposite the U.S. dollar and with the dollar up after the Fed meeting, Gold experienced a corresponding drop. However, the Fed indicated during the meeting that the recent jump in energy costs is likely to increase inflation, which plays to Gold’s draw as a safe haven for investors. According to the central bank, the U.S. economy is undergoing moderate expansion while still facing serious downside risks. Officials with the Fed said they expect rates will stay near zero for at least the next two years, citing continued high unemployment in the United States.
The optimism for economic recovery was further stimulated by results of banking stress tests reported Tuesday. Most of the largest banks passed their tests, with the exception of Citigroup, the nation’s third-largest bank. Most analysts said the Fed had failed enough banks (four) to give the test creditability, while at the same time assuring the banking system is sound. Others are not so sure. On CNBC on Wednesday, Peter Elston of Aberdeen Asset Management said, “I think a lot of banks are still overstating their assets, and they have not recognized problem loans to the extent that they should have done, and it is very difficult to trust numbers.”
In an interesting tidbit, it was revealed that European taxpayers ended up carrying the bulk of the burden from Greece’s debt restructuring, thanks to careful planning that delayed the restructuring and allowed banks to dump most of their exposure to Greek debt. When Greece received its first bailout from the International Monetary Fund in 2010, eurozone banks held about $68 billion of the country’s debt, and about $51 billion of that would have been lost had Greece defaulted. Over the next 15 months, however, banks suddenly carried much less than half of their original load of Greek debt. Raoul Ruparel of Open Europe said, “That is a horrible deal for the EU taxpayer. The longer we wait for these restructurings, the worse the deal gets for the public. There’s an ongoing risk transfer from the banks to the taxpayers.”
Weekly Spot Prices
Product of the Week
Because of the history behind them, the Austrian 100 Corona Gold Coins are some of the most interesting coins in the world. For example, the Austrian 100 Corona Gold Coins were among some of the first gold bullion coins available upon the enactment of an executive order on December 31, 1974, that re-entitled Americans to own gold bullion. In addition to their availability at the time of the 1974 order, the Austrian Corona Gold Coins are also fascinating because they are restrikes, which are official reproductions of coins that were originally minted for circulation. Issued from 1908 to 1914, the Austrian 100 Gold Coins first featured their date of issue. However, after the death of the Austrian Emperor Franz Joseph, the gold coins were produced as commemorative pieces and were dated 1915.
Minted in Vienna Austria, the Austrian 100 Corona Gold Coin is .900 fine gold (21.6 karat gold) and contains 0.9802 troy ounces of gold. Designed by Stephan Schwartz, the Austrian 100 Corona Gold Coin pays tribute to Austrian nationalism and pride. The obverse of the Austrian Corona Gold Coin displays a portrait of the Austrian Emperor Franz Joseph I, who ruled from 1848 to 1916. The reverse features the Austrian Coat of Arms symbol, depicting a double eagle and a crown. Moreover, the edges of the Austrian 100 Corona Gold Coins include the lettering Vnitus Viribvs, which means “the unified strength,” a well-known motto attributed to Franz Joseph I. No longer minted, the Austrian 100 Corona Gold Coins are some of the lowest-premium gold bullion coins available on the world coin market. Appealing to both collectors and investors alike, the Austrian 100 Corona Gold Coins have begun to attract attention for both their unique history and low-premium gold status.