End of the week report: Spain, QE3 and Gold Prices

 

Gold Consolidates:

 

 

 

 

 

“After rapidly rising between mid-August and mid-September, Gold has since been consolidating,” BNP Paribas analyst Anne-Laure Tremblay said. “Short term, we could see a limited correction before the price resumes its ascent. The U.S. dollar has been strengthening of late, particularly against the euro. This is likely weighing on the Gold price. Beyond this, the Gold market is just taking a breather, as it is not far off the $1,800 an ounce level, which constitutes a strong resistance.” The break in price in Gold has not gone unnoticed by investors. Gold-backed funds increased by almost 300,000 ounces this week according to reports.  One piece of news that also gained attention this week is the amount of Gold that countries have been adding to their central banking systems. South Korea and Paraguay lead all other countries by adding more than 24 tons of Gold to their reserves in July alone. “Whether you’re looking at physical flows into ETFs or the options market, activity has clearly been on the bullish side, and that will see prices move higher as we go through the fourth quarter,” said Credit Suisse analyst Tom Kendall.

 

 

 

 

 

QE3 Questions?:

 

 

 

 

 

Not all members of the U.S. Federal Reserve appear to agree on the benefit or effectiveness of the recently announced new round of quantitative easing (QE3). Charles Plosser, President of the Federal Reserve Bank of Philadelphia, is concerned that not only will the new bond-buying program not work, but that it might also call into question the credibility of the U.S. central bank. “We are unlikely to see much benefit to growth or to employment from further asset purchases,” said President Plosser. “Conveying the idea that such action will have a substantive impact on labor markets and the speed of the recovery risks the Fed’s credibility.” U.S. investors are buying U.S. Treasuries at a quicker pace than international investors for the first time since 2010. This has certainly contributed to the U.S. debt climbing above $16 trillion USD for the first time. U.S. Treasuries have become popular despite their record-low yields because many investors also share the concern that QE3 will not succeed in stimulating the economy and creating more jobs. International investors still own 50.4 percent of the U.S. Treasuries, but this is down from the 55.7 percent share owned in 2008.

 

 

 

 

 

 

 

 

 

 

 

Spanish Gamble?:

 

 

 

 

 

Spanish Prime Minister Mariano Rajoy seemed to be gambling with his country’s well-being. The latest speculation out of Spain was that Rajoy was delaying a bailout request because he believed that issues in Italy will worsen, making the bailout terms friendlier for Spain when it does finally request a bailout. Raphael Gallardo of Rothschild Asset Management said that Spain “would be in better company and would suffer less of a stigma if it was to ask for a rescue at the same time as Italy. Italy needs further austerity efforts so those are probably more reachable with the support of the European Union and the ECB.”  Protests on the streets of Spain intensified during the week as the country began to roll out economic reforms along with its new budget.  Prime Minister Mariano Rajoy said, “We know what we have to do, and since we know it, we’re doing it. We also know this entails a lot of sacrifices distributed… evenly throughout the Spanish society.” His words, and the measures he intends to enact, are not enough to soothe all dissenting voices. A member of parliament was quoted as saying, “On paper they can make it all add up, but it will be hard to make the budget credible given all the reasonable doubts on the deficit target. It will be really tough to make the markets buy it.”  An audit of Spanish banks was also expected to be completed this week. The eurozone’s third largest economy has seen much trouble lately, and has been hit hard by the housing crisis. Citizens of Madrid continue to protest the announced austerity measures , and one region of the country has even threatened to break away from Spain. The overwhelming expectation is that these measures are the first part of Spain formally requesting a bailout from the European Union. At one point, Spain was feared as “too big to fail,” or at least too big to bail out, so it will be interesting to see how the EU handles this situation.

 

 

 

 

 

 

 

 

 

 

 

 

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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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