APMEX End of Week Market Report

GOLDEN 4th QUARTER:

Market analyst Ronald Stoeferle at Erste Group recently released a comprehensive report on Gold’s value and a forecast. Stoeferle suggests that the fourth quarter of 2012 could be extremely positive for the yellow metal; he predicts the price will reach $2,300 per ounce. Stoeferle said, “Due to its high liquidity and unique characteristics, Gold is becoming ever more prominent as collateral. Therefore, we are currently seeing the renaissance of Gold in international finance. The foundation for a return to ‘sound money’ has been laid.” He added, “Gold is now officially again ‘as good as gold’ and ranks on the same level as cash. We expect this decision to have a wide range of implications. For example, the opportunity cost of holding Gold will be reduced massively.”  Joining the ranks of those who believe Gold is undervalued is investment bank Merrill Lynch, which is expecting the Federal Reserve to act in the second half of this year. In an appearance Thursday on CNBC, Francisco Blanch, head of Global Commodity and Multi Asset Strategy Research at Merrill Lynch, said, “We think that $2,000 an ounce is sort of the right number. We believe that ultimately the Fed will be forced to do quantitative easing. If it happens in September, as our economists expect, we will get a rally sooner in Gold. If it happens after the election (in November), we will get the rally a little bit later; probably we will touch $2,000 an ounce sometime next year.”

QUESTIONS ON FED’S DIRECTION:

The minutes from June’s Federal Open Market Committee meeting were released Wednesday weighing on Precious Metals markets. While the Fed does appear to be open to buying Treasury bonds, it is still not of a mind to take additional action. “It is a case that any hints, any clues that are coming out of the Fed over when they might do it, whether they might do it, are absolutely central to Gold prices. There have been a few comments by FOMC members suggesting they are more prepared for QE (quantitative easing), but the Fed minutes we got last night gave a much more balanced, more neutral view of things,” said Nic Brown of Natixis. Since the inception of quantitative easing in 2008, Gold prices have more than doubled.  When United States Federal Reserve Chairman Ben Bernanke previously announced the Fed was extending Operation Twist, it seemed cut and dried. The Fed buys bonds from banks to help stimulate the economy. There is an issue that has been overlooked, however. “People are not willing to sell Treasuries. The data in the U.S. doesn’t look as good. The labor market has lost momentum. There will be more upside left in Treasuries despite the low levels of rates,” said Thanos Bardas, a managing director at Neuberger Berman LLC in Chicago. This glitch could put a hamper on recovery efforts.

BELT TIGHTING IN SPAIN:

Earlier this week Eurozone ministers agreed to grant Spain an extra year to meet targets in deficit reduction, and set guidelines for a proposed aid package. The hope is this measure would prevent Spain from needing a full bailout in the face of a worsening recession. “There’s no emergency here; there’s a clear path towards stabilization,” Luxembourg Finance Minister Luc Frieden said of the measures that will apply for Spain. “The markets have to realize that the money is there, more money than is necessary.”  After poring over Spain’s austerity and bank bailout plan, many analysts still feel that it only buys time for the ailing country and does little or nothing to alleviate the problems plaguing the highly indebted nation. Furthermore, some are wondering if Spain can even follow through with the austerity measures it has promised. “We doubt whether the envisaged 65 billion euros in fiscal savings will be realized in full,” Dutch brokerage ING stated. In a nation where one in four are unemployed, the population could be extremely resistant to more cuts in government spending. The Spanish government is expecting a prolonged recession, saying it has little hope for any economic growth before the end of 2013. Analysts are expecting the current plan to lead to a recessionary spiral, where austerity measures lead to economic contraction, reducing government revenues and therefore triggering the need for more austerity measures.

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Investors look for monetory easing

The global economy is slowing, and that is driving a higher demand for Gold. Economic issues have been abundant lately. The situation in Europe has shown no signs of improvement. China’s economy has slowed to a pace not seen in almost three years. The reports in the United States also show a slowdown in key economic areas. “Issues surrounding Europe’s debt crisis and a slowing economy in the U.S. and China will offer support to (Gold) prices,” said Sun Yonggang at Everbright Futures Co.

On the European front, many observers say that Germany holds the key to economic recovery for the entire region. While that might be true, don’t expect the German people to agree to that theory. “Right now, people are making the same mistake and assuming that what is good for Volkswagen and BMW is good for Germany. But that isn’t true, either. The voters have already caught on. Whatever bailout their leaders might agree to at one of the endless ‘save the euro’ summits will simply get thrown out at the ballot box,” said Matthew Lynn, the founder of Strategy Economics.

In the United States, much talk has been about the lack of action taken by the Federal Reserve. With the reports of manufacturing and employment slowing, the conditions could be pointing toward another round of monetary easing by the Fed. “Extending Operation Twist was a less overt move for the Fed to keep interest rates low, but I think economic conditions are moving in a direction that it could become necessary for the Fed to pump money into the system in a more obvious way through QE3,” said Tom Schrader, managing director at Stifel Nicolaus.

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

  • Gold, $1,581.30, Up $0.00.
  • Silver, $27.27, Up $0.32.
  • Platinum, $1,430.10, Up $0.40.
  • Palladium, $584.00, Up $6.50.
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