Profit Taking Pulls Down Stocks, Precious Metals

 

U.S. stock futures and Precious Metals are down slightly this morning, as investors are taking profits on the recent gains.  News of a downgrade to the outlook for Greece’s sovereign debt rating also affected the markets, as the EU and International Monetary Fund seem less likely to provide more bailout funds to the troubled country.  Also, the Bank of England paved the way for another round of quantitative easing for its country, cutting growth and inflation forecasts.

At least one analyst believes that the recent market rally is actually just setting up the stock market to fall.  “I think we’re in choppy waters and that continues,” Charlie Morris of HSBC Global Asset Management said.  “You need to trip the market to have a proper collapse.  So you almost need to set it up with a rally, get everyone excited and then it can fall.  If there are risks, the risks to a very negative market come after this rally fades.”  In the long-term, traditionally, steep stock market losses are supportive of the Gold price.

The main topic supporting the price of Precious Metals right now is still the possibility of future monetary easing by the U.S. and the eurozone.  Richcomm Global Services senior analyst Pradeep Unni said, “Gold seems to be supported by hopes that Europe and the United States would launch more stimulus measures to help shore up their faltering economies.  Investors are betting that the festering debt crisis in the eurozone could push the ECB to launch a new round of bond-buying soon.”

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

  • Gold, $1,608.40, Down $2.40.
  • Silver, $27.90, Down $0.30.
  • Platinum, $1,403.70, Down $7.70.
  • Palladium, $586.50, Down $3.20.

 

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Gold Seeks Direction Amid Global Economic Woes

As the week comes to a close, two things stand out in the marketplace. First are the unexpected positive job reports in the United States. These reports have given life to the dollar and taken the steam out of Gold’s two week rally. Second, negative economic news continues to flow out of Europe and China. Both have cut key interest rates, and that could be a good sign for Gold’s global outlook. “While the ECB cut was near term bearish for Gold, as it weakened the euro, it may be more bullish longer term. Added global liquidity, with policy easing measures from the eurozone, China and the Bank of England, may stimulate demand for hard assets, including Gold,” HSBC financial services wrote in a note.

The United States has been improving steadily in many key economic factors. Employment reports have shown fewer Americans without work. The housing market has turned a corner and is making up lost ground. The issue is with the pace of the improvement. Even with the unemployment numbers dropping, it is such an insignificant amount that the overall percentage remained unchanged. “Growth has been low, and there remains uncertainty about the economy and policy here and abroad. All of those things are weighing on activity, but overall I’d put it on low growth in the U.S.,” said economist Andrew Tilton of Goldman Sachs.

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

  • Gold, $1633.89, Down $21.48.
  • Silver, $28.02, Down $0.48.
  • Platinum, $1490.96, Down $25.89.
  • Palladium, $595.25, Down $7.71.
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Retails sales fall in May; Futures point to a lower start

American stock futures are pointing to a lower start, and were pushed even lower after a report showed that retail sales fell in May.  Jim Reid of Deutsche Bank said, “In reality, price action is likely to remain unpredictable as we move towards this weekend as position squaring will likely dominate ahead of the Greek election this Sunday.”  The focus is squarely back on Greece in the eurozone, as the latest election could make-or-break the repeated bailout attempts for the troubled country.  Gold recovered from early losses after the retail sales report.

Since 2008, over $6 trillion has been printed as part of money-printing or quantitative easing programs by the central banks of the world.  Further quantitative easing is on all of the “Big Four” (Federal Reserve, European Central Bank, Bank of England, Bank of Japan) central banks’ agendas in the near future.  Many investors assume that further easing is sure to happen, according to Bank of America Merrill Lynch’s Gary Baker.

The central banks seem to know a way to offset the inflation created by money printing, however.  According to the World Gold Council, Gold makes up more than 70% of the reserves of countries like the U.S.A., Germany, Italy, and France.  Kazakhstan is the latest to significantly increase its holdings in the metal, and by the end of the year expects to have holdings up to 20%.  The country has purchased 16.2 tons of Gold through April of this year, and expects that number to be 24.5 tons in the second half of the year.

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

  • Gold – $1,622.50 – Up $8.70.
  • Silver – $29.02 – Down $0.03.
  • Platinum – $1,462.30 – Up $5.90.
  • Palladium – $625.10 – Up $0.90.
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Credit Dries Up for Spanish Banks

Spain may be required to accept a bailout soon as the country’s Treasury Minister told Spanish radio listeners today that it’s “technically impossible” for Spain to bail itself out. Spanish banks are suffering from an overload of debt from the country’s bursting housing bubble that was fueled by cheap interest rates after Spain joined the eurozone. Bond yields on Spanish sovereign debt have tipped near the 7% mark that signals markets are anticipating a default, and have been trading at 5.48% premium to safe-haven German bonds, indicating reluctance to loan the government more and more money. Spain will attempt to issue $2 billion more euros in debt on Thursday, which will be a test of market sentiment.

Famed hedge fund manager George Soros estimates Europe has three months to address the crisis. “The heavily indebted countries need relief on their financing costs. There are various ways to provide it but they all need the active support of the Bundesbank and the German government,” Soros said. “Nothing can be done without German support.” While he does not expect a full-blown collapse of the euro, Soros expects Germany’s economy to weaken and the resolve of German citizens to soften to the point that they will be increasingly resistant to assist with further bailouts. Soros, a noted gold bug, rose to fame in the early 1990’s by betting against the British pound, earning him the title, “The Man Who Broke the Bank of England.”

At 5 p.m. (EDT), the APMEX Precious Metals spot prices were:

  • Gold, $1,617.60, Up $4.20.
  • Silver, $28.57, Up $0.48.
  • Platinum, $1,437.20, Up $7.90.
  • Palladium, $624.30, Up $10.30.
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