Euro region unusually divided before summit

Precious Metals are trading lower this morning, thanks to investors moving to the sidelines ahead of the European Union summit, which starts tomorrow.  Michael Turner of RBC Capital Markets said, “This could be a reasonably long holding pattern until the headlines start to flow from the European Council’s heads of state summit tomorrow.”  The wait-and-see approach has currencies like the U.S.A. dollar and the euro trading mostly flat.

While summer is likely to not hold any big moves by policymakers in the U.S.A., Europe, or China, Deutsche Bank analyst Daniel Brebner believes one thing could support gold.  “…I think we’ll continue to see very steady buying by central banks, which have been in the market for the last couple of quarters or so.  That should help gold prices from weakening…” he said.

European leaders aren’t exactly agreeable ahead of the summit.  German Chancellor Angela Merkel, in response to euro bonds being a potential solution to the debt crisis, said that she doesn’t expect that to happen in her lifetime.  With borrowing costs in Italy and Spain reaching dangerous levels, the leaders of those countries are calling for assistance, and Merkel wasn’t keen on that idea either.  Spanish Prime Minister Mariano Rajoy said, “The most urgent issue is the one of financing.  We can’t keep funding ourselves for a long time at the prices we’re currently funding ourselves.”

At 9 a.m. (EDT), the APMEX precious metals spot prices were:

  • Gold – $1,567.30 – Down $9.10.
  • Silver – $26.80 – Down $0.36.
  • Platinum – $1,409.70 – Down $19.20.
  • Palladium – $580.10 – Down $14.60.
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Eurozone worries mount; precious metals on the move

Early morning precious metals prices have been fairly volatile on eurozone debt fears and the escalation of violence and rhetoric involving Syria. Analyst Robin Bhar said, “Gold is capped on the upside by disappointment post-Fed, while on the downside, we have some bargain hunting, and a bit of physical buying into the troughs… We are stuck in a fairly small range here, in the 1570-1600 area, certainly until the weekend when we will get to hear more on how the euro zone will be (tackled).”

The eurozone debt issues continue to escalate after the announcement of a fifth eurozone nation applying for aid. Although Cyprus, the fifth nation seeking aid, is a much smaller “hit”, the combined impact of rising Italian and Spanish yields, Greek resolution, and monetary bailout has European leadership at a crucial crossroads. A summit has been put together to overcome some hurdles the European Union is now facing. Basically the whole of Europe is interested in a single treasury and euro bond, except Germany, but Germany is, at this point, the only truly solvent nation and facing their own issues in being the benchmark, if you will, as production and consumer sentiment in Germany has slid over the last couple of months. Chairman Jim O’Neill said, “The euro crisis is in some ways mind-bogglingly simple to solve … because it isn’t economics, it’s politics… If Angela Merkel and her colleagues stood there together with the rest of the euro area … and if they behaved as a true union this crisis would be finished this weekend.”

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

  • Gold – $1,579.80 – Down $9.10.
  • Silver – $27.30 – Down $0.33.
  • Platinum – $1,436.10 – Down $5.30.
  • Palladium – $602.50 – Down $5.80.
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Time to sound the alarm with Spain?

Precious metals have been generally even to climbing through early morning trading. Investors are wary of world events and slowly re-establishing their safe haven mentality in regards to global and domestic economic situations. The FOMC is set to release a statement tomorrow, which analysts feel are corralling prices for now. Analyst Lynette Tan said, “Ahead of the FOMC meeting, gold bugs will watch for signs of more quantitative easing or an extension of Operation Twist when it ends this month. A failure to confirm more asset purchase or the like could see gold dropping again. For the moment, we expect policy decisions from the Fed to influence gold price more than risk appetite linked to the euro crisis.”

Is it time to sound the alarm on Spain? That’s the question facing the global community, with a call for help so far falling on deaf ears, but is readily apparent in the debt sale attempts. German Chancellor Angela Merkel continues to compromise, but the firm line in the German sand is not sharing the burden with the euro bonds. Spanish Treasury Minister Cristobal Montoro has asked the ECB for its help. However, the ECB continues to put the onus of responsibility on the countries themselves. Spanish Economy Minister Luis de Guindos said, “We think … that the way markets are penalizing Spain today does not reflect the efforts we have made or the growth potential of the economy. Spain is a solvent country and a country which has a capacity to grow… I don’t think things look catastrophic for Spain as eventually some solution will have to be found, or the ECB will have to step in again. It’s in no one’s interest to see Spain bailed out, because then there will be questions as to whether there are enough funds, and questions over Italy.”

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

  • Gold – $1,630.70 – Up $3.20.
  • Silver – $28.85 – Up $0.08.
  • Platinum – $1,489.30 – Up $3.20.
  • Palladium – $634.30 – Up $0.10.
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Gold slightly higher

American stock futures are mostly flat this morning, with many investors seemingly unsure how to react to recent developments in Europe and the U.S.A.  David Morrison of GFT Markets said, “As we have seen many times recently, the previous day’s price action has been reversed in early trading.  Yesterday we saw stocks rally” as a result of J.P. Morgan’s CEO testifying before the Senate Banking Committee.  However, stocks “then tumbled after an auction of U.S.A. 10-year Treasuries,” added Morrison.  While investors believe stocks may not be the safest place for their money, Morrison explained, “An increasing number are coming to the opinion that this continued flight into U.S.A. Treasuries despite pathetic yields is a very bad sign indeed.”  Gold could benefit from this realization, as the metal has historically been a safe haven investment in times of uncertainty.

At a recent bond auction, the yield on 10-year bonds in Spain rose above 7 percent, which was the trigger point for Greece, Ireland, and Portugal when those countries requested aid from the European Central Bank.  Moody’s Investor Service cut Spain’s credit rating by three notches, and now rests one level above junk status.  The pressure is on German Chancellor Angela Merkel to come up with a solution, but she recently shot down what she termed “miracle solutions,” calling them counterproductive and said that they would violate the German constitution.

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

  • Gold – $1,627.50 – Up $8.10.
  • Silver – $29.01 – Down $0.03.
  • Platinum – $1,486.80 – Up $18.00.
  • Palladium – $625.00 – Up $1.80.
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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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