APMEX End of Week Report 6/22/2012


No QE3… Yet
Precious metals prices fell this week after the Fed announced that it was not yet ready to embark on a third round of aggressive stimulus, known as quantitative easing, or QE, although an extension of the Fed’s program known as “Operation Twist” was announced.  The outlook for Precious Metals remains tied to any Federal Reserve indication of further QE, as well as the European economic situation.  Advisor Bill O’Neill said, “At least for the near term, it’s mainly a short term negative for Gold because it indicates that there won’t be immediate and new aggressive accommodation, and certainly no QE3 at all judging from this statement.”

“Currently we’re seeing a bit of follow through from disappointed investors, but believe we should be finding support pretty soon,” Saxo Bank Vice President Ole Hansen said.  “(Fed Chairman Ben) Bernanke left the door open and extended the expected period of low interest, which is good news for Gold.  Overall I think the market is not ready to let go of Gold, as it still looks like one of the better bets should the economic outlook continue to deteriorate.”

Spain moves to forefront as Greek elections settle turmoil

Optimism from Greece’s election is wearing thin thanks to renewed worries from Spain.  In Greece, Sunday’s election seems to be a victory for a pro-austerity party, though investors seem to be waiting for more information from Spain before they get too excited.  Steen Jakobsen of Saxo Bank said, “The market knows this is about buying time, and as the main story is now Spain … we need more details on banking reports and Germany’s intention.  It’s more concerning that (shortly into the European trading day), Spain is back in focus.”

Bond yields on Spanish government debt hit a fresh high this week, signaling the market’s growing reluctance to continue loaning money to the insolvent country.  Yields topped 7 percent, the highest since Spain joined the euro.  “By requesting external assistance for the eurozone’s fourth largest economy, the … government has pushed Spain, Italy and the bloc as a whole into uncharted waters,”  said Nicolas Spiro, managing director of Spiro Sovereign Strategy.  In criticism directed toward the government of Spanish Prime Minister Mariano Rajoy, Spiro said, “Politically speaking, the ‘line of credit’ to Spain has already failed.”

Moody’s Downgrades Credit of Largest Banks in the World       

Moody’s downgrade of 15 international and domestic banks had been anticipated by the banking industry but still is throwing a wrench in the plans, as the downgrades do affect the lending costs of these banks. A key factor in the announcement is which banks weren’t downgraded.  Some observers said Moody’s intent with this downgrade was to, in some sense, laud the banks that are stable with secure bank deposits from its customers.  Citigroup wrote, “The new ratings landscape could provide a competitive edge for higher rated firms. …  Markets tend to discriminate more between issuers at lower ratings — in terms of funding costs — particularly during times of stress.”  The fact that these banks were flagged previously helped to minimize market impact, but market impact is still felt.