Central Bank Considers Reclassification of Gold Bullion

The Central Bank of the US Federal Reserve released a memo on June 18, which calls for the reclassification of gold from a 50% weighting to a 100% weighting. Currently, for every $1.00 held by the banks or central bank only 50 cents can be claimed as book value. By changing gold to a 100% weighting, it would retain full value just like other financial instruments. This would enhance gold’s appeal to the banking community and possibly drive up demand.

Friday’s big jump in the stock market was a reaction to news that European leaders are going to come up with a viable bailout plan. Although this was welcome, it is still a bailout and the European economies are still desperately struggling. U.S. companies are affected as well, and this is expected to show in the upcoming earning reports. Many U.S. companies are issuing warnings and they site Europe as a key factor for their disappointing numbers. Second quarter reports will show the euro debt crisis, weak European and Chinese demand, decline of the euro and the overall global economy will affect the earnings of many U.S. firms.

At 9AM EST the APMEX precious metals prices were:

  • Gold price – $1,594.50 – down $11.20
  • Silver price – $27.53 – down 15 cents
  • Platinum price – $1,439.50 – down $11.40
  • Palladium price – $580.90 – down $4.70
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Gold rallies strongly today

Gold, much like American stocks, rallied strongly today, though it wasn’t enough to claim a victory on the quarter.  The move upwards in Gold is thanks to expectations regarding Europe’s plan to curb its debt crisis being inflationary.  Historically, any type of monetary easing or money printing has been very supportive of Gold, as is any time of economic turmoil.  The news brought the euro up against the dollar, and Gold followed.

Part of the deal in Europe revolves around the European Financial Stability Facility being able to “provide support to banks directly, without going via national governments balance sheets,” according to Jens Larson of RBC in London.  Larson added, “That suggests that Spain’s public finances may eventually be freed of some of the burden associated with recapitalizing its financial system, and the statement also makes clear that a new deal for Ireland might be in the making.”  However, there is still concern that this won’t be a lasting solution, or at least that this news can continue to carry a market rally.

What the American dollar will do after the coming election has surprisingly nothing to do with the outcome of the election itself.  Historically, global and domestic economies have more of an impact on currency trade than political issues.  Currency trade has been a big factor in Precious Metals prices lately, with Gold and Silver moving inversely to the dollar.  While Europe’s financial crisis has caused the dollar to shine just by mere comparison, that isn’t likely to continue.  Axel Merk, portfolio manager of the Merk Hard Currency Fund said, “The dollar is benefitting from the mess in the eurozone, but things are not much better here.”

At 5:07 p.m. (EDT), the APMEX Precious Metals spot prices were:

  • Gold – $1,600.10 – Up $48.20.
  • Silver – $27.53 – Up $1.18.
  • Platinum – $1,448.50 – Up $60.70.
  • Palladium – $583.20 – Up $18.30.
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Precious metals under pressure; Euro keeps falling

Gold is continuing its downward trend during midday trading, as the euro continues to fall and a resolution to the problems in Spain and Greece remains unseen. “Gold looks fragile at the moment,” BNP Paribas analyst Anne-Laure Tremblay said. “It could rebound if U.S. durable goods orders disappoint tomorrow, as the market would then anticipate a greater probability of the Fed easing.” American consumer confidence and outlook data have both hit lows for the year.

The European stock market closed lower on concerns over waning American consumer confidence and lackluster interest in a recent Spanish debt auction. The European Union is also coming under fire from Germany for focusing too much on plans that include debt sharing. “Stocks have ended in a soft manner today, with clients holding back from taking on risk ahead of the EU summit later this week,” wrote Ishaq Siddiqi, a market strategist at ETX Capital in London. “Worries that leaders are set to disappoint continue to grow, as Germany refrains from its stance on euro bonds.”

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

  • Gold, $1,574.10, Down $15.80.
  • Silver, $27.11, Down $0.54.
  • Platinum, $1,432.50, Down $8.70.
  • Palladium, $594.10, Down $14.20.
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So What’s Up with the Gold Price?

So What’s Up with the Gold Price? (Resource Investor)

Get Ready for $1,200 an Ounce Gold (The Street)

US sales of new homes rose 3.3 percent in April (AP)

Late rally erases steep losses on Wall Street (AP)

Euro-Zone Leaders Step Up Greece Contingency Plans (WSJ)

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Metals Retreat as Dollar Continues to Climb

Currency markets pushed the American dollar higher amid dim hopes for a European solution. Kevin Hebner, a foreign-exchange strategist for JPMorgan in London, wrote to clients today, “For the second time in six months, Greece’s Economic and Monetary Union exit seems imminent.”  Fears of a breakup of the eurozone have been driving down the value of the European currency for the last few weeks.  A weak euro bolsters the American dollar, and as a consequence, typically pushes down the price of precious metals and other commodities.

A bit of positive news surrounding the American housing market was released today, indicating an increase in sales of existing homes.  “We’re still a ways from looking at an encouraging picture of the U.S. economy, though when it comes to housing, every little bit helps,” said Camilla Sutton, a currency strategist at Scotia Capital in Toronto.  Overall home values have increased 10.1% from April 2011, but are still about 30% lower than the high-water mark set in 2006.  Diana Olick, a real estate reporter for CNBC cites a reduction in bank foreclosures and distressed sales as the primary driver for the higher prices.

At 4 p.m. (EDT), the APMEX Precious Metals spot prices were:

  • Gold, $1,569.10, Down $21.10.
  • Silver, $28.25, Up $0.17.
  • Platinum, $1,448.80, Down $14.70.
  • Palladium, $613.00, Up $0.30.
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Weekly Gold and Silver Market Recap for May 11, 2012

by John Foster. Email John.

Silver Lining in Gold’s Fall:

While gold finished this week down nearly 2% there looks to be some Good news for Gold pricesas a survey conducted by Bloomberg showed that 14 of 32 analysts anticipate prices to gain next week. The Gold price is currently being affected by the political uproar in Europe, which is pushing the euro down, and positive American economic news, which is strengthening the doll

Silver bullion bar 1000oz top view

Silver bullion bar 1000oz top view (Photo credit: Wikipedia)

ar. “When the market gets very nervous, then they buy dollars, and Gold finds it difficult to rally,” said Jesper Dannesboe, an analyst at Societe Generale SA in London. “Given what’s going on in the markets at the moment, any rally will probably just be a bounce before another setback.”  One hedge fund manager is predicting tough times ahead for stocks, which could be positive for gold and silver, considering the negative correlation the metals historically hold to stocks. Referring to the Federal Reserve’s “Operation Twist,” he says that “the Fed has effectively found a way to keep long-term interest rates low … and cleverly engineered another bull rally (for stocks). … The U.S.A. will have to start dealing with issues that some market participants refer to as Taxmageddon.” “Taxmageddon” is the term being given to the coming months before the U.S.A. presidential election, when many decisions on tax breaks are due. Continue reading