Europe Crisis Affecting Gold Prices, Global Economic Forecast Lowered

The economic turmoil in Europe has taken its toll on the global economy with gold being no exception. The euro has fallen to a two-year low with the news that the troubled countries are no closer to resolving their issues. The other driving factor in gold this week is the upcoming Federal Reserve report to the U.S.A. Senate Banking Committee. The report is crucial to the economic forecast in the United States. “Gold has been pulled and pushed on the back of expectations of further quantitative easing and remains under pressure from the stronger U.S. dollar,” Suki Cooper, an analyst at Barclays Plc in New York, wrote today in a report.

At the beginning of the year, there were positive signs of an economic turnaround. The job market was getting stronger, profit margins were up, and the industrial markets had solid gains. Today, those same key factors to the economy don’t have the same appeal. The employment numbers have slowed to a crawl, retail numbers are falling, and consumer confidence is waning. A recent survey of economists shows a 30% decrease in employment from last year and a 60% decrease in sales since April. “The survey results suggest worsening economic conditions,” said Nayantara Hensel, a business professor at National Defense University who analyzed the results for NABE. “The rising sales and profit margins experienced earlier in the year may have been short-lived.”

The global growth forecast as set by the International Monetary Fund (IMF) is used to gauge the economic outlook for the world. Today the IMF lowered their expectations for the rest of 2012 and 2013. The main issue continues to be Europe and the economic crisis In the European Union. “Downside risks to this weaker global outlook continue to loom large,” the IMF said in an update of its World Economic Outlook. “The most immediate risk is still that delayed or insufficient policy action will further escalate the euro area crisis.”

At 1:00 pm (EDT), the APMEX precious metals spot prices were:

  • Gold – $1591.70 – Down – $1.80
  • Silver – $27.35- Down – $0.10
  • Platinum – $1417.30 – Down – $17.90
  • Palladium – $578.90 – Down – $7.80
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Spanish Fallout & Positive Housing Data

Gold has turned negative in midday trading as the fallout over downgraded Spanish ratings added strength to the U.S.A. dollar.  A strengthening dollar drives down the demand for dollar-denominated commodities, including gold.  “Gold has a swift and negative reaction to the U.S. dollar firming up in the middle of the trading session along with weaker oil prices,” said Jeff Wright at Global Hunter Securities. “All of this is in reaction to news of a downgrade by Egan-Jones in the credit rating of Spain; we view Spain as the best line of defense to save the euro zone and have already factored Greece defaulting on their debts and exiting the euro this summer.“

Also adding pressure to gold prices is the rising U.S.A. stock market.  The S&P 500 is up again on housing data.  “We’re definitely seeing signs of stabilization on the housing front,” said Brad Sorensen, at Charles Schwab Corp. “The economy is looking decent. There’s also a bit of relief that we won’t have any imminent kicking out or defaulting of Greece.” There also appears to be a shift from stock repurchase to business investment during April and May. “Investors and corporations themselves are best served when the cash is applied to improving capital investment, as opposed to buying stock back,” said Bruce Bittles of Robert W. Baird & Co.. “That would be much more bullish.”

At 1:00 p.m. (EDT) – the APMEX precious metals spot prices were:

  • Gold – $1,559.10 – Down $11.60.
  • Silver – $27.96 – Down $0.53.
  • Platinum – $1,432.00 –Up $3.50.
  • Palladium – $605.00 –Up $13.10.
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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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