Weekly Recap: The Fed Pulls The Trigger On Stimulus Plan

The Fed Pulls The Trigger On Stimulus Plan:

Precious Metals prices spiked Thursday after the announcement that a third round of quantitative easing (QE3) would start on Friday. In a statement, the Federal Open Market Committee said, “The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions.” Of course, among the current conditions the Committee mentioned is a very stubborn 8 percent unemployment rate.  For QE3, the Fed will purchase mortgage-backed securities to the tune of $40 billion per month and monitor the results. This will be an “open-ended” bond-buying plan, so the end of the program will be decided at a later date when conditions improve.  News of this new program sent Gold up Thursday, closing up nearly 2 percent for the day and 10 percent for the month. “After the move we had, not just yesterday, but over the last two or three weeks, I think it would be natural to look for a period of consolidation,” said Tom Kendall, an analyst at Credit Suisse in London. “But certainly going into the back end of this year, I would be looking for Gold to be getting towards at least the $1,850 level.”

Platinum Climbs As Strikes Continue:

The Platinum prices gained at a much greater pace than other metals this week due to the unrest in South Africa. The top Platinum producer in the world, Anglo American Platinum, is now being affected by striking miners, who blockaded roads leading to shafts. “Fear of intimidation and threats by unidentified individuals in and around” certain locations caused some non-striking miners to be unable to report for work, according to a statement.  Reports were released that 10,000 striking platinum miners – many of whom were armed with sticks and machetes – marched on several Lonmin mine shafts threatening violence against strike breakers who are continuing to work. The recent strikes have inspired laborers in South African gold mines to rebel against their own employers. The result has been a stoppage of production at two Gold Fields (the world’s fourth largest gold producer) mines in the last several days. “We haven’t been given any demands but the pattern is the same as KDC East. It is intimidation. The strikers went around from hostel to hostel yesterday to prevent the others going to work,” Gold Fields spokesman Sven Lunsche said.

Concerns Over U.S. Debt Levels Climb:

German Finance Minister Wolfgang Schaeuble brought into question the United States’ high level of debt. He said in a speech this week to the lower house of parliament that U.S. debt is a burden for the global economy. He underscores the fact that the rest of the world is keeping their eye on the U.S. elections and is concerned about our ability to deal with our mounting debt once the elections are over. This comes just after the United States national debt reached an inauspicious $16 trillion. Credit rating agency Moody’s also warned this week that the U.S. may lose its Aaa credit rating if next year’s budget policies do not show a pattern of reducing the national debt over time. If budget talks “lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed and the outlook returned to stable,” Moody’s said in an emailed statement. “If those negotiations fail to produce such policies, however, Moody’s would expect to lower the rating, probably to Aa1.” Last year rival Standard & Poor’s downgraded the U.S. credit from its top rating.

Gold retains investor confidence

The markets for Gold and other commodities are going strong thanks to more economic issues in the United States and Europe. While the price of Gold has been steady, the stock market has been anything but. Menachem Brenner, a finance professor at New York University’s Stern School of Business, said, “People have lost confidence in nearly every other instrument, so they invest in Gold. Over the past 10 years, commodities have become a new asset class if you want to diversify beyond stocks. More institutional investors are coming in. This will be going on for years to come.”

Germany is going to be a major factor in the way Europe handles the financial crisis it faces. How the Germans factor into the equation will be a hot topic at the European Union summit on Thursday. The focus will be on which nations will lead the recovery efforts. However German Chancellor Angela Merkel says the focus needs to be more long term. “I say quite openly, when I think of the summit on Thursday, I’m concerned that once again the discussion will be far too much about all kinds of ideas for joint liability and far too little about improved oversight and structural measures.”

In the United States, the November elections are on the minds of Americans. The question may not be who will be elected, but what he will do once elected. In a recent poll, the answer to who will do the best job with the economy was “none of the above.” An Associated Press poll conducted from June 14 to 18 shows the majority of those asked said the winner will have “just some impact” to “no impact” on the economy. Not even one-third of the American voters polled said they think the economy will get better in the next year.

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

  • Gold, $1,585.30, Up $17.90.
  • Silver, $27.58, Up $0.81.
  • Platinum, $1,441.20, Up $8.00.
  • Palladium, $607.50, Down $0.70.

Bailout accepted by Spain

Gold and Silver prices both opened higher Sunday on the announcement this past weekend that Spain agreed to a $125 billion (American dollars) bailout. The devil is always in the details, and although the details of this agreement are still unknown, both equity and Precious Metals markets have reacted favorably. The money will go to struggling Spanish banks. It is hoped that this infusion of capital will revive Spain’s financial system.

Now that a bailout has been accepted by Spain, the focus will shift to the approaching Greek election. The Greeks will decide Sunday whether they will remain in the European Union, thereby holding together the eurozone. On May 6, elections were held with neither party being able to form a government, so a new election was scheduled for June 17. The pro-bailout New Democracy party is slightly in the lead, but it is still unknown whether that party will be able to form a coalition if it wins the election.

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

  • Gold, $1,595.80, up $4.40.
  • Silver, $28.74, up $0.18.
  • Platinum, $1,454.30, up $27.20.
  • Palladium, $623.00, up $11.00.

Precious metals are down 1%-2% this morning

Precious metals are down 1%-2% this morning as investors await news from an informal summit meeting in the eurozone.  David Morrison of GFT Markets said, “Although this is litle more than a taxpayer-funded dinner for Eurocrats ahead of the main summit in June, any further signs of a rift between Germany and France will see the euro and equities fall further.”  Lately, as the euro has moved, so have precious metals.

Germany and France are far from the only topic of note in the eurozone.  The main focus at the moment seems to be the potential exit of Greece from the group.  Jim O’Neill, chairman at Goldman Sachs Asset Management said, “The markets are putting together a higher probability for the end-game in the eurozone…” in reaction to high demand for Germany’s two-year, no-interest bonds being sold at the lowest yield ever.  Speaking on the ramifications of Greece leaving the bloc, he said, “Once one exits, it breaks the notion that it’s a true currency union and that is a big moment.”

Oil markets, which have historically held a positive correlation to gold, have been uneasy in the midst of sanctions placed on Iran and other happenings in the Middle East.  A meeting between Iran and six world powers, including the U.S.A., is taking place to continue to attempt to convince Iran to scale back its nuclear program.  Iran has made it clear that it will not be intimidated, however, Russia’s foreign minister believes that the impression is that Iran is “ready to seek agreement on concrete actions.”

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

  • Gold – $1,563.10 – Down $15.10.
  • Silver – $27.87 – Down $0.40.
  • Platinum – $1,433.00 – Down $27.40.
  • Palladium – $609.50 – Down $8.00.

Precious metals continue to ride eurozone train

The concerns out of the eurozone continue to pull down the euro and strengthen the U.S. dollar, 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.”

Greek citizens continue to hold out for hope that money will be found to help bail the country and its citizens. The prevailing feeling is that Europe will not just cut their losses and kick Greece out of the eurozone. An alarming, almost de ja vu-ish feeling permeates through the country as some citizens say, “There’s a lot of money in this country, they just need to tax the rich and it would solve so many problems.” Does that sound familiar? The Greek citizens voice their displeasure through their voting results, with another election coming next month and fears that the drachma will come back.

The issues surrounding Greece do have some impact on the U.S. and should not be taken lightly. There are a few issues in particular including the U.S. banks’ susceptibility to eurozone debt. The weakening power of the euro as a currency could mean that U.S. goods would also become more expensive, diminishing the value of those goods. As well as the global impact that could be felt by other global powers like China.

At 8:01 a.m. (EDT) – the APMEX Precious Metals spot prices were:

  • Gold – $1,579.50 – Down $10.70.
  • Silver – $28.29 – Down $0.12.
  • Platinum – $1,460.90 – Down $2.60.
  • Palladium – $613.70 – Up $0.90.
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