EU shocker sends precious metals higher

Precious Metals prices moved noticeably higher in early morning trading as the dollar weakened against the euro on news of a European plan to lower eurozone member nations’ borrowing costs. Economist Vishnu Varathan said, “It still falls short of a concrete solution, but the removal of severe pessimism over what’s going to come out of the EU summit is driving markets higher.” Meanwhile, the news has led analyst Lynette Tan to offer a positive year end outlook for Gold. She said, “In the long run, we’re still bullish on Gold. It’s still likely to hit last year’s high of $1,920. The global economy is not doing well, and we expect safe haven demand to be back for Gold.”

Eurozone leaders came together and hammered out a surprising compromise plan to help member nations. There are still issues to be worked out, but going from “no hope” to at least a road map of a plan on which everyone agrees has been a boost to global markets. The biggest shock of all was Germany’s agreement to a majority of the provisions. Banker Holger Schmieding said, “The summit result offers no ‘silver bullet’ to solve the euro crisis once and for all. … It is another attempt to buy some extra time for the underlying fiscal repair and structural reforms to show results. All in all, there is some progress.” However, strategist Charles Diebel stated what many investors are probably thinking: “It is one step on a very long road. But we don’t have any details, and arguably the detail is where the risk lies, because the market will start to pick holes in it, as we’ve seen previously.”

At 9:03 a.m. (EDT), the APMEX Precious Metals spot prices were:

  • Gold, $1,598.50, Up $46.60.
  • Silver, $27.73, Up $1.38.
  • Platinum, $1,428.00, Up $40.20.
  • Palladium, $580.00, Up $15.10.
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European summit not looking good; dollar rising

Precious metals prices are weathering the blows of investors concerns over the eurozone debt crisis. The concerns ahead of the European Union summit, has influenced investors and even world markets. The rupee continues to struggle, which has curbed the primary gold-investing nation of India’s normal buying. Analyst Robin Bahr said, “There’s no semblance of a safe-haven at the moment but as the price goes lower that bid does come back as you maybe get some renewed investor interest – sovereign wealth funds and central banks looking to nibble away and even some physical buying.”

The concerns now are growing, as concerns over Germany’s own economic issues mount. As executive and consumer sentiment fell from 90.5 in May to 89.9, the lowest for Germany since late 2009 and unemployment is on the rise. The issue is that now core member nations, not just secondary nations, are affected by the growing debt crisis. Economist Christoph Weil said, “Germany won’t be able to disconnect from the euro-region developments… The second quarter will show an economic contraction and there are no signs of improvement for the following three months. Whether the situation stabilizes afterward hinges decisively on the euro crisis and latest developments are no real reason for optimism.”

The pressure continues to build for German Chancellor Angela Merkel within the European Union as she continues to be attacked on all sides from nations that find her intransigence off-putting. However, it is not just her partner nations, but she is even pressured globally. The issue is that as unpopular as her beliefs are in the EU, they are quite popular with the German people. Billionaire George Soros feels her position is a bit myopic. He said, “Merkel has realized that the euro is not working, but she cannot change the narrative she has created because that narrative has caught the imagination of the German public, and the German public has accepted it.”

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

  • Gold – $1,570.10 – Down $9.90.
  • Silver – $26.96 – Down $0.11.
  • Platinum – $1,402.30 – Down $9.50.
  • Palladium – $577.00 – Down $3.80.
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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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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.

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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Precious metals, although higher today, are still experiencing a lot of volatility

Precious metals, although higher today, are still experiencing a lot of volatility through the day due to concerns growing over the eurozone debt crisis. Though risk remains elevated in the eurozone gold is holding steady. Domestic and sovereign concerns are hinged on central banks’ offerings of support. Analyst David Wilson said, “(Federal Reserve Chairman Ben) Bernanke, in comments made to the Congress committee last week, seemed to be intimating that QE was off the table… But I wonder (whether) if Europe continues to drag, the likelihood of QE continues to grow… That in itself should be supportive for gold.” Meanwhile in a note to investors Commerzbank wrote, “So far the financial aid promised to Spanish banks has failed to have its desired effect. On the contrary, the sell-off of Spanish and indeed Italian government bonds continues… The sovereign debt crisis can be expected to keep the markets on tenterhooks for quite some time yet and cause demand for gold to pick up again — not only among retail investors.”

Alex Tsipras is still viewed as a front runner in this weekend’s Greek elections. He also feels that the European Union does not want to kick Greece out, even after repealing the austerity measures inflicted for the bailout the country has already received. He said, “We have no sense that European partners will follow this tactic of blackmail heard from some quarters and stop funding… Something like that would be catastrophic not only for Greece but for the entire euro area… We want to simply convince our partners that it’s in the interests of all to stop sending EU taxpayers’ money into a bottomless pit. This money should be used properly in a program that is effective and not on a memorandum that has failed.” The Greek people are making a run on the banks ahead of these elections, causing more of an economic strain on an already tenuous situation. Tsipras spoke to this topic as well when he said, “To stop these outflows, this hemorrhage from the financial system, it is imperative to have support from all political sides that we’re working to stabilise the Greek economy. This scare-mongering on Greece leaving the euro must stop.

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

  • Gold – $1,618.10 – Up $4.30.
  • Silver – $28.88 – Down $0.17.
  • Platinum – $1,466.00 – Up $9.60.
  • Palladium – $618.80 – Down $5.50.
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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