APMEX End of Week Report for 6/8/2012

Bernanke Speaks:

Official portrait of Federal Reserve Chairman ...

Official portrait of Federal Reserve Chairman Ben Bernanke. (Photo credit: Wikipedia)

Gold has had ups and downs this week. The market has many investors questioning the long term outlook for Precious Metals.  As with all investments, there will be unknown factors.  At present, there is the European economic crisis, the Chinese economic slowdown, and underachieved goals for a better American economy. With these situations being in play, it could signal good news for investors. Dennis Gartman, author of The Gartman Letter, said, “The trend for Gold is still from the lower left to the upper right. I think that you want to own Gold in dollar terms; I think you want to own Gold in euro terms; I think you need to own Gold in yen terms. And quite honestly at this point, given the economic circumstances, I think you’d like to be long of gold and short the stock market.”  There was a lot of cautious optimism bubbling ahead of Federal Reserve Chairman Ben Bernanke’s testimony before Congress this week.   Global strategist Dan Greenhaus said, “There’s just been, for the last 48, 72 hours, a growing feeling that a 10 percent decline in the stock market is as deep a decline as you would get with Ben Bernanke lurking tomorrow.” He also added, “The fate of the market in the next couple of days is in Ben Bernanke’s hands, and it’s over his interpretation of the state of the economy.”  That interpretation wasn’t as clear as some would hope, as Chairman Bernanke refused to tip his hat regarding any new stimulus package.  Bernanke indicated that while the central bank is willing to protect the economy from “worsening,” he did not specify what actions (if any) the Fed would take. “The Gold bulls are desperately hoping for further mention of some form of stimulus from the Fed,” said David Govett of Marex Spectron. “If some form of this is put on the table, then I expect Gold will react very positively. If however, as I personally believe, the Fed leaves things as they are for the time being, this will be viewed as negative and Gold will fall.”

Spanish Debt Downgrade:

MADRID, SPAIN - MARCH 30:  Spain's Minister of...

MADRID, SPAIN – MARCH 30: Spain’s Minister of Treasury and Civil Services Cristobal Montoro Romero unviels Spain’s budget for 2012, during a press conference at the Moncloa Palace on March 30, 2012 in Madrid, Spain. The budget for 2012, which comes in the wake of a 24-hour general strike, includes over 27 bn euros in savings. (Image credit: Getty Images via @daylife)

At the G-7 conference this week, Spain’s Treasury Minister Cristobal Montoro sounded the alarm about how bad the banking situation is in Spain at this time. As the debt gets worse the access to credit to help bail themselves out is becoming more and more detrimental. He even called for European assistance, a departure from what other government officials had wanted, which was to raise the funds itself.  In an interview Montoro said, “The risk premium says Spain doesn’t have the market door open. The risk premium says that as a state we have a problem in accessing markets, when we need to refinance our debt.” That problem grew later in the week when ratings agency Fitch downgraded Spanish debt from A to BBB on concerns that the country will need a bailout package to avoid economic disaster. Furthermore, Fitch’s outlook is negative, which means that more downgrades are likely.  German Chancellor Angela Merkel reacted by reiterating Germany’s commitment to helping its weaker eurozone partners. “It is important to stress again that we have created the instruments for support in the eurozone and that Germany is ready to use these instruments whenever it may prove necessary,” she said.

Germany Holding the Reigns:

Germany appears to be willing to trade a greater role supporting its indebted EU partners for more centralized control over government spending in member nations. While

Deutsch: Dr. Angela Merkel Bundeskanzlerin der...

Deutsch: Dr. Angela Merkel Bundeskanzlerin der Bundesrepublik Deutschland Vorsitzende der CDU Deutschlands (Photo credit: Wikipedia)

continuing to stay away from the idea of “eurobonds,” there is growing interest in pooling the bad debt with a payoff timetable of 25 years. “The world wants to know how we expect the political union to complement the currency union,” German Chancellor Angela Merkel said. “We have to find an answer in the foreseeable future.” In comments later this week Chancellor Angela Merkel said that Germany will use all the tools it has available to support the 17-nation eurozone. “In view of the current difficulties, it’s important to emphasize that we have created the instruments of support in the eurozone, that Germany is ready to work with these instruments whenever that is necessary, and that this is an expression of our firm desire to keep the euro area stable.”  Merkel, however, has not backed off her rejection of debt sharing or access to euro bailout funds for Spanish banks.

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Gold price dips as Fed Chairman testifies

The Gold price has taken a tumble in midday trading as Federal Reserve Chairman Ben Bernanke refused to tip his hat regarding any new stimulus package. Bernanke indicated that while the central bank is willing to protect the economy from “worsening,” he did not specify what actions (if any) the Fed would take. “The Gold bulls are desperately hoping for further mention of some form of stimulus from the Fed,” said David Govett of Marex Spectron. “If some form of this is put on the table, then I expect Gold will react very positively. If however, as I personally believe, the Fed leaves things as they are for the time being, this will be viewed as negative and Gold will fall.”

Bernanke’s testimony to the Joint Economic Committee highlighted many of his concerns without much substance on how the central bank might act. Bernanke also warned lawmakers that “a severe tightening of fiscal policy at the beginning of next year that is built into current law — the so-called fiscal cliff — would, if allowed to occur, pose a significant threat to the recovery.” Next up will be the Federal Open Market Committee meeting June 19-20, which is expected to deal with slowing employment growth.

German Chancellor Angela Merkel has said that Germany will use all the tools it has available to support the 17-nation eurozone. “In view of the current difficulties, it’s important to emphasize that we have created the instruments of support in the eurozone, that Germany is ready to work with these instruments whenever that is necessary, and that this is an expression of our firm desire to keep the euro area stable,” the chancellor said.  Merkel, however, has not backed off her rejection of debt sharing or access to euro bailout funds for Spanish banks.

At 1 p.m. (EDT), the APMEX Precious Metals spot prices were:

  • Gold, $1,591.60, Down $40.10.
  • Silver, $28.73, Down $0.85.
  • Platinum, $1,444.20, Down $27.00.
  • Palladium, $625.00, Down $7.80.
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Eurozone fears permeate the precious metals market

Precious metals have remained relatively steady in overnight trading. Physical demand and better than expected German data helped maintain prices during overnight trading, but there continues to be concern over Greece’s role and whether or not it will stay in the euro that adds to the volatile currency market. Marex Spectron said, “When German GDP came in at 0.5 percent, a lot higher than expected, the subsequent rally in the euro gave rise to a quick 10-dollar short covering rally in gold.” However Gold’s rebound is viewed as a likely scenario as Pradeep Unni said, “(Gold’s) safe haven status has been tarnished… It will wobble on the euro’s weakness, but in a very short term, bargain hunting and pent-up demand will emerge taking it higher.”

The push for austerity in Greece remains in place regardless of the pleas from Alexis Tsipras, who boycotted a bargaining meeting yesterday in support of his views. The talk of Greece leaving the euro is not viewed as a realistic option. However, the failure of the Greek government to form a unity government after its most recent elections continues to adversely affect European markets. Marchel Alexandrovich said, “The euro breakup story is gathering steam again… If Greece were to ever exit the euro, no amount of reassuring comments will convince investors that other countries won’t soon follow.”

Francois Hollande is to be sworn in as French President later today. Once sworn in, he is expected to fly to Germany to meet with Chancellor Merkel for the first time. The meeting will be closely monitored due to their disparate views and Merkel’s very public support of Hollande’s challenger Nicolas Sarkozy. Carsten Brzeski said, “In our view, what currently looks like a clash between growth-fanatics and austerity-fetishists will eventually end in a good European compromise with something for everyone: The fiscal compact and the medium-term goal of balanced budgets should remain intact, but complemented by a new growth compact with European funds and initiatives.” Erwin Grandinger said, “I think it’s the first kick-off meeting to repair personal relations between Hollande and Merkel. Merkel had done something extremely unusual. She took sides in the presidential elections.” Hollande has supported pro-growth sentiments, while Merkel has had a pro-austerity position.

At 9:00 a.m. (EDT) – the APMEX Precious Metals spot prices were:

  • Gold – $1,559.90 – Down $2.50.
  • Silver – $28.28 – Down $0.14.
  • Platinum – $1,450.40 – Up $6.80.
  • Palladium – $603.50 – Up $7.60.
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