Europe in the Crosshairs of G20 Leaders

First on the list of priorities at the meeting of the leaders of the world’s twenty largest economies is – no surprise here – the financial crisis in Europe that has been stewing for over two years now.  President Barack Obama has scheduled one-on-one meetings with German Chancellor Angela Merkel about the European crisis, and Russian President Vladimir Putin about the conflict in Syria, in which Russia plays a large role as Syria’s primary arms supplier.

Bond yields on Spanish government debt hit a fresh high today, 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 euro zone’s fourth-largest economy, the Rajoy government has pushed Spain, Italy and the bloc as a whole into uncharted waters,” said Nicolas Spiro, managing director of Spiro Sovereign Strategy.  “Politically speaking, the ‘line of credit’ to Spain has already failed.“

Elections in Greece on Sunday failed to calm jittery markets as stocks and commodities turned negative today.  After the pro-Euro and pro-bailout New Democracy party won in Greece, Michelle Gibley, director of international research at the Schwab Center for Financial Research said, “Even though we avoided the worst-case scenario in Greece, the crisis has entered a new and dangerous phase, and it doesn’t end with Greece.”

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

  • Gold, $1,629.30, Up $0.70.
  • Silver, $28.78 Down $0.06.
  • Platinum, $1,484.80, Down $4.40.
  • Palladium, $635.60, Up $4.30.

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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Euro news dominates headlines; American stock futures and Precious Metals are trading lower

Spain

Spain (Photo credit: robynejay)

American stock futures and Precious Metals are trading lower this morning amid another credit-rating downgrade in Spain.  Borrowing costs in the country soared, and it has now become a matter of when, not if, a bailout will be necessary.  Reports are also showing that the European Central Bank has rejected Spain’s plans to recapitalize Bankia SA, its largest bank, which put a dagger in sentiment.  This news drove the American dollar up, while precious metals have been pushed down.

A quick look at the headlines of CNBC’s website confirms that most of the focus is on the eurozone.  One headline is particularly interesting, with an analyst suggesting that Spain would exit the eurozone before Greece did.  Spain, the eurozone’s third-largest economy, leaving the euro may not be the country’s choice, but instead may be the EU’s.  “They are too big to rescue, they have no political hang-ups about rupturing their relations with the EU, they are already fed up with austerity, and there is a bigger Spanish-speaking world for them to grow into,” Matthew Lynn of Strategy Economics said.

Many investors are fearing that China could be slipping into a similar situation to that of 2008-2009, but top advisers said that “massive fiscal stimulus” is not the answer at this time.  Richard Boucher of the Organization for Economic Co-operation and Development said, “I don’t think we’re back in that kind of acute crisis phase…  It is not just a question of money.  The Chinese authorities have a whole variety of tools to use to stabilize the right level of growth… I think signs that Chinese growth is stabilizing at a steadier level, a more sustainable level, would be good for everybody.”

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

  • Gold – $1,549.60 – Down $0.90.
  • Silver – $27.76 – Down $0.12.
  • Platinum – $1,413.30 – Down $16.80.
  • Palladium – $602.50 – Down $3.50.
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Weekly Gold and Silver Market Recap for May 25, 2012

by John Foster. Email John.

Golden Range?:

Concerns out of the Euro zone continued to pull down the euro and strengthen the American dollar this week, thus pulling down prices. Gold in particular has remained relatively fluid within a certain price range of $1,530 to $1,590. However a key price indicator in the short term continues to be $1,600 an ounce. However, euro pressure continues to be in the driver’s seat for prices. An unidentified international dealer said, “If we break above $1,600 and even go higher to confirm the bull trend, we will see more buying.”  Gold’s price drop has been well documented during the past few weeks. Many factors have led to the shift in price. However, in the view of many investors, this is an opportunity, based on a closer look at the numbers. CNBC contributor Dennis Gartman said, “The public is massively bearish, and that tells me it’s time to be bullish.” He added, “Most people don’t think Gold and stocks can go higher together, but I expect to see them trade dramatically higher over the course of the next several months. The trend is now higher.”  Prices of Precious Metals were boosted by news of purchases from the biggest of spenders. Central banks in Turkey, Ukraine, Mexico, and Kazakhstan increased their Gold holdings in April, according to the International Monetary Fund. Commerzbank AG said, “We regard the central banks as a stabilizing element on the Gold market and anticipate increasing buying of Gold.” Lachlan Shaw of Commonwealth Bank of Australia said that early signs of an American recovery, a slowdown in Chinese growth, question marks over United States monetary policy and a sovereign debt crisis brewing in Europe are all keeping the market in a wait and see mode. “Any of these four catalysts can drive prices and investment demand,” he said.

U.S Slow but Steady?:

The United States might experience slower economic growth than previously expected with the end of extended benefits for the unemployed. This might influence some job seekers to accept jobs they otherwise would prefer not to, or give up searching for a job and drop out of the labor force. Andrew Tilton at Goldman Sachs Group Inc. is optimistic about the end of the extended benefits program. He said, “There has been an improvement in the availability of jobs. In a better labor market, people losing their benefits would be more likely to look and to find a job, and less likely to simply drop out.  However, consumer sentiment in the United States rose to its highest point in more than four years in May. Optimism in the air as a healthier economy is beginning to develop. Richard Curtin, head of the University of Michigan’s consumer survey, reflected on how long the consumer sentiment will remain positive. He said, “The most likely prospect is that job growth resumes at a modest pace and that confidence remains largely unchanged until after the November election and decisions about tax policy are made.” Despite the upheaval in Europe, the United States’ economy continues to push forward. There is concern the debt problems in Europe and China could affect American factory data soon, with the Purchasing Managers Index slowing from 56.0 in April to 53.9 this month. Paul Edelstein said, “We are growing at moderate pace of two to two-and-a-quarter percent, but we have some headwinds that are starting to assert themselves, particularly coming from Europe.” Continue reading

Expectations of Euro stimulus holds markets

Precious metals, stocks, and currencies all seem to be trading quietly this morning.  Many investors are expecting the European Central Bank (ECB) to announce some sort of stimulus or support the markets some other way soon.  However, strategists at Barclays said, “The bottom line is that in the near term, the policy response (by the ECB) is likely to be fairly limited, except if there is a serious further deterioration in sentiment or economic conditions.”

The gold price is slightly positive, staying over the $1,560 mark for the time being.  Lynette Tan of Phillip Futures said, “(Gold) is also weighed down by dollar strength and we see any positive economic or employment data from the U.S.A. as pressuring gold.”

Economists have estimated that Greece leaving the eurozone could impact the U.S.A. to the tune of one-tenth to one-half of a percentage point in gross domestic product growth.  Reuters recently lined out three possibilities, and the ramifications of each: The eurozone stumbles along, Greece leaves, or a messy situation where Greek leaves and damage spreads.

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

  • Gold – $1,565.10 – Up $6.10.
  • Silver – $28.22 – Down $0.03.
  • Platinum – $1,428.00 – Up $3.60.
  • Palladium – $591.40 – Down $1.90.
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Central banks jump back on the Gold train

Prices of Precious Metals were boosted this morning by news of purchases from the biggest of spenders. Central banks in Turkey, Ukraine, Mexico, and Kazakhstan increased their Gold holdings in April, according to the International Monetary Fund. Commerzbank AG said, “We regard the central banks as a stabilizing element on the Gold market and anticipate increasing buying of Gold.” Lachlan Shaw of Commonwealth Bank of Australia said that early signs of an American recovery, a slowdown in Chinese growth, question marks over United States monetary policy and a sovereign debt crisis brewing in Europe are all keeping the market in a wait and see mode. “Any of these four catalysts can drive prices and investment demand,” he said.

The weekly jobless claims report boosted the American dollar’s appeal. The report showed no movement in the number of claims, remaining at last week’s level of 370,000. American stock futures added to gains after the news.

Weakness in China’s economy and continued struggles in the eurozone appear to be forcing the Chinese government’s hand, as economists and strategists are predicting aggressive stimulus in that country. Dariusz Kowalczyk of Credit Agricole said, “The focus of the stimulus is likely to be on the fiscal side … because this is the fastest way to boost aggregate demand.” Economic stimulus around the world has been positive for Gold and Silver prices in the past.

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

  • Gold, $1,577.20, Up $27.20.
  • Silver, $28.54, Up $0.94.
  • Platinum, $1,434.30, Up $18.20.
  • Palladium, $601.70, Up $8.60.
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Gold’s overreaction; a Greece solution in the works

Gold’s price drop has been well documented over the past few weeks. There have been many factors leading up to the shift in price. However, in the view of many investors, this is an opportunity based on a closer look at the numbers. CNBC Contributor Dennis Gartman was quoted in an interview as saying, “The public is massively bearish and that tells me it’s time to be bullish.” He later added, “Most people don’t think gold and stocks can go higher together, but I expect to see them trade dramatically higher over the course of the next several months,” he says. “The trend is now higher.”

The news from the World Bank could be a negative sign for the Asian region as a whole. Reports show that growth in the region has slowed from 10% in 2010 to 7.6% this year. The main factor is in China where the slowdown has had the largest effect. However, these rates are much stronger than the growth rate in the U.S.A., where the economy grew only 1.7% last year.

Germany has come up with a new idea to put an end to the finical disaster that is Greece. The plan would call for Greece to stay in the European Union, but adopt its own currency (Geuro). This idea has many positives. First, it gives Greece a chance to balance its budget without support from lenders. It will also allow them to reject the austerity program that they have been opposed to from the start. Thomas Mayer of Deutsche Bank noted on the idea of a separate currency for Greece, “Initially we would expect a large depreciation, but the Greek authorities would have the power to stabilize or even strengthen the exchange rate of the Geuro against the euro, via prudent fiscal policy and structural reform, so as to keep the door open to a future return to the euro.”

At 1:00 p.m. (EDT), the APMEX precious metals spot prices were:

  • Gold – $1545.30- Down $32.80
  • Silver – $27.42 – Down $0.85
  • Platinum – $1415.90 – Down $44.50
  • Palladium – $593.20 – Down $24.40
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