Weekly Recap: The Fed Pulls The Trigger On Stimulus Plan

The Fed Pulls The Trigger On Stimulus Plan:

Precious Metals prices spiked Thursday after the announcement that a third round of quantitative easing (QE3) would start on Friday. In a statement, the Federal Open Market Committee said, “The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions.” Of course, among the current conditions the Committee mentioned is a very stubborn 8 percent unemployment rate.  For QE3, the Fed will purchase mortgage-backed securities to the tune of $40 billion per month and monitor the results. This will be an “open-ended” bond-buying plan, so the end of the program will be decided at a later date when conditions improve.  News of this new program sent Gold up Thursday, closing up nearly 2 percent for the day and 10 percent for the month. “After the move we had, not just yesterday, but over the last two or three weeks, I think it would be natural to look for a period of consolidation,” said Tom Kendall, an analyst at Credit Suisse in London. “But certainly going into the back end of this year, I would be looking for Gold to be getting towards at least the $1,850 level.”

Platinum Climbs As Strikes Continue:

The Platinum prices gained at a much greater pace than other metals this week due to the unrest in South Africa. The top Platinum producer in the world, Anglo American Platinum, is now being affected by striking miners, who blockaded roads leading to shafts. “Fear of intimidation and threats by unidentified individuals in and around” certain locations caused some non-striking miners to be unable to report for work, according to a statement.  Reports were released that 10,000 striking platinum miners – many of whom were armed with sticks and machetes – marched on several Lonmin mine shafts threatening violence against strike breakers who are continuing to work. The recent strikes have inspired laborers in South African gold mines to rebel against their own employers. The result has been a stoppage of production at two Gold Fields (the world’s fourth largest gold producer) mines in the last several days. “We haven’t been given any demands but the pattern is the same as KDC East. It is intimidation. The strikers went around from hostel to hostel yesterday to prevent the others going to work,” Gold Fields spokesman Sven Lunsche said.

Concerns Over U.S. Debt Levels Climb:

German Finance Minister Wolfgang Schaeuble brought into question the United States’ high level of debt. He said in a speech this week to the lower house of parliament that U.S. debt is a burden for the global economy. He underscores the fact that the rest of the world is keeping their eye on the U.S. elections and is concerned about our ability to deal with our mounting debt once the elections are over. This comes just after the United States national debt reached an inauspicious $16 trillion. Credit rating agency Moody’s also warned this week that the U.S. may lose its Aaa credit rating if next year’s budget policies do not show a pattern of reducing the national debt over time. If budget talks “lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed and the outlook returned to stable,” Moody’s said in an emailed statement. “If those negotiations fail to produce such policies, however, Moody’s would expect to lower the rating, probably to Aa1.” Last year rival Standard & Poor’s downgraded the U.S. credit from its top rating.

US Economy Looking Dim; Gas Prices Down

The price of gold is moving up as the safe haven appeal fully returns with the continued weariness of the eurozone debt crisis worsening.  Cyprus is the fifth eurozone country to ask for assistance from Europe.  The Cypriot government said in a statement, “The purpose of the required assistance is to contain the risks to the Cypriot economy, notably those arising from the negative spillover effects through its financial sector, due to its large exposure to the Greek economy.”

Goldman Sachs strategist Jim O’Neil is more concerned with the U.S.A. economy than Europe’s due to America’s fragile condition that seems to be off track.  O’Neil said, “Europe doesn’t run the world.  The second half of the year, unless Europe completely implodes, I’m still in the camp that the markets recover, particularly the U.S. and some of the big (emerging markets) and we could still conceivably see new highs,” he said. “So we shouldn’t get solely focused on the European stuff.”

Gas prices are slowly falling, which in turn is positive for the economy to an extent.  Credit Suisse economist Jonathan Basile  said, “It’s like a stabilizer in the economy, but you also don’t want to see gasoline prices falling persistently because that will tell you there’s got to be something else fundamentally wrong in the global picture.  Gasoline prices are the most visible prices in the economy. People see it…It’s very easy to see lower prices. That’s the good news. But you have to put it into the context of what’s going on.”

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

  • Gold, $1,585.30, Up $17.90.
  • Silver, $27.57, Up $0.80.
  • Platinum, $1,444.50, Up $11.30.
  • Palladium, $608.40, Up $0.20.

Gold retains investor confidence

The markets for Gold and other commodities are going strong thanks to more economic issues in the United States and Europe. While the price of Gold has been steady, the stock market has been anything but. Menachem Brenner, a finance professor at New York University’s Stern School of Business, said, “People have lost confidence in nearly every other instrument, so they invest in Gold. Over the past 10 years, commodities have become a new asset class if you want to diversify beyond stocks. More institutional investors are coming in. This will be going on for years to come.”

Germany is going to be a major factor in the way Europe handles the financial crisis it faces. How the Germans factor into the equation will be a hot topic at the European Union summit on Thursday. The focus will be on which nations will lead the recovery efforts. However German Chancellor Angela Merkel says the focus needs to be more long term. “I say quite openly, when I think of the summit on Thursday, I’m concerned that once again the discussion will be far too much about all kinds of ideas for joint liability and far too little about improved oversight and structural measures.”

In the United States, the November elections are on the minds of Americans. The question may not be who will be elected, but what he will do once elected. In a recent poll, the answer to who will do the best job with the economy was “none of the above.” An Associated Press poll conducted from June 14 to 18 shows the majority of those asked said the winner will have “just some impact” to “no impact” on the economy. Not even one-third of the American voters polled said they think the economy will get better in the next year.

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

  • Gold, $1,585.30, Up $17.90.
  • Silver, $27.58, Up $0.81.
  • Platinum, $1,441.20, Up $8.00.
  • Palladium, $607.50, Down $0.70.

Spain formally requests EU aid

Uncertainty in Europe has led to American stock futures falling and Precious Metals prices remaining flat.  A two-day European Union summit meeting is set for later this week, but Peter Boockvar of Miller Tabak said that “nothing of substance will come” of the meeting.  He added that German is “just not giving into the requests for largesse that the rest of Europe wants them to disperse in the form of socializing debt obligations in the euro region.”

After informally making the request last weekend, Spain has formally requested aid from the eurozone.  Olli Rehn, the EU’s top economic official, said that it could happen in a matter of weeks, adding, “The policy conditionality of the financial assistance … will be focused on specific reforms targeting the financial sector, including restructuring plans which much fully comply with EU state aid rules.”

Gold seems to be in a holding pattern at the moment.  Macquarie analyst Hayden Atkins said, “The broader picture suggests gold could move a bit lower, but it will stay in this range until we see definitively whether the bulls will be right about the printing presses at central banks ramping up again, or whether they will hold fire until the world gets a lot worse.  It is in a wait-and-see kind of mode,” suggesting that increases in the Gold price are likely, and that it’s just a matter of ‘when,’ not ‘if.’

At 9:26 a.m. (EDT), the APMEX precious metals spot prices were:

  • Gold – $1,573.90 – Up $6.50.
  • Silver – $26.85 – Up $0.08.
  • Platinum – $1,435.90 – Up $2.70.
  • Palladium – $607.90 – Down $0.40.

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.

Gold prices ease on caution ahead of Fed statement

American stock futures are trading slightly higher this morning, while the Gold price has dropped.  This movement comes ahead of a highly-anticipated Federal Reserve policy decision which could bring about a new round of quantitative easing.  Nick Beecroft of Saxo Capital Markets U.K. explained that while QE is the hope of the markets, the Fed is more likely to announce an extension of Operation Twist, its bond-buying program.  “This will probably disappoint equity markets, which seem to be expecting ‘another shot of heroin,’” he said.

European leaders fleshed out a list of concrete steps to potentially solve its debt crisis in front of a Group of 20 (G20) summit, with the G20 leaders supporting what the eurozone brought to the table.  U.S.A. President Barack Obama said that it was clear that the leaders know what steps need to be taken to shore up the debt crisis, adding, “None of them are going to be a silver bullet that solves this thing entirely … in the next week or two weeks or two months, but each step points to the fact that Europe is moving towards further integration rather than break-up.”

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

  • Gold – $1,605.60 – Down $18.10.
  • Silver – $28.20 – Down $0.27.
  • Platinum – $1,459.90 – Down $22.60.
  • Palladium – $624.90 – Down $5.50.

What will be Gold’s Next Move? Potential QE3 Announcement Wednesday

Precious metals prices have remained stable throughout the day following this morning’s trends with little movement. Federal Chairman Ben Bernanke will hold a press conference Wednesday and it is expected that additional easing measures will be announced. Anne-Laure Tremblay from BNP Paribas wrote in a note to clients, “Probable actions include interest rate cuts by the European Central Bank and the People’s Bank of China [and] further quantitative easing by the Federal Reserve,” she said, adding that such action would likely support gold buying. “Quantitative easing, or an expansion of a central bank’s balance sheet, is more favorable for gold prices…[as it] tends to have a strong negative impact on the U.S. dollar and is also more likely to raise inflationary expectations.”

As the Federal Reserve continues its two-day policy meeting tomorrow with a hopeful resolution to stimulate America’s economy analyst Dick Bove is patiently waiting, but not quietly. Bove considered what a third round of quantitative easing would actually do for the financial system he said, “It seems clear that the United States economy’s growth is slowing and that the global economy is facing major challenges. This suggests a need for some action by the Federal Reserve and other central banks,” Bove said in a note to clients. “It also appears to be just as evident that lowering interest rates to zero and printing more money are not effective options.”

At 5:01 p.m. (EDT), the APMEX Precious Metals spot prices were:

  • Gold, $1,619.50, Down $8.00.
  • Silver, $28.47, Down $0.30.
  • Platinum, $1,481.50, Down $4.60.
  • Palladium, $630.40, Down $3.80.