Euro news dominates headlines; American stock futures and Precious Metals are trading lower


Spain (Photo credit: robynejay)

American stock futures and Precious Metals are trading lower this morning amid another credit-rating downgrade in Spain.  Borrowing costs in the country soared, and it has now become a matter of when, not if, a bailout will be necessary.  Reports are also showing that the European Central Bank has rejected Spain’s plans to recapitalize Bankia SA, its largest bank, which put a dagger in sentiment.  This news drove the American dollar up, while precious metals have been pushed down.

A quick look at the headlines of CNBC’s website confirms that most of the focus is on the eurozone.  One headline is particularly interesting, with an analyst suggesting that Spain would exit the eurozone before Greece did.  Spain, the eurozone’s third-largest economy, leaving the euro may not be the country’s choice, but instead may be the EU’s.  “They are too big to rescue, they have no political hang-ups about rupturing their relations with the EU, they are already fed up with austerity, and there is a bigger Spanish-speaking world for them to grow into,” Matthew Lynn of Strategy Economics said.

Many investors are fearing that China could be slipping into a similar situation to that of 2008-2009, but top advisers said that “massive fiscal stimulus” is not the answer at this time.  Richard Boucher of the Organization for Economic Co-operation and Development said, “I don’t think we’re back in that kind of acute crisis phase…  It is not just a question of money.  The Chinese authorities have a whole variety of tools to use to stabilize the right level of growth… I think signs that Chinese growth is stabilizing at a steadier level, a more sustainable level, would be good for everybody.”

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

  • Gold – $1,549.60 – Down $0.90.
  • Silver – $27.76 – Down $0.12.
  • Platinum – $1,413.30 – Down $16.80.
  • Palladium – $602.50 – Down $3.50.
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Wealth manager supports Gold in portfolios

Fluctuations in the Gold price the past two weeks have made investors reluctant to buy the metal. However, Michael Yoshikami, founder and chairman with Destination Wealth Management, spoke with CNBC regarding reasons why Gold should be included in one’s portfolio. Yoshikami takes into account how central banks have most recently become net buyers of Gold to protect themselves and diversify out of unstable currencies. Yoshikami said when inflation materializes, Gold will provide a level of inflation protection, because tangible assets tend to perform well in inflationary environments.

Consumer sentiment in the United States rose to its highest point in more than four years in May. Optimism in the air as a healthier economy is beginning to develop. Richard Curtin, head of the University of Michigan’s consumer survey, reflected on how long the consumer sentiment will remain positive. He said, “The most likely prospect is that job growth resumes at a modest pace and that confidence remains largely unchanged until after the November election and decisions about tax policy are made.”

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

  • Gold, $1,567.60, Up $8.30.
  • Silver, $28.35, Up $0.10
  • Platinum, $1,427.20, Up $2.80.
  • Palladium, $592.00, Up $2.40.
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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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Investors selling Gold to restore portfolios

Once the smoke clears in the eurozone, analysts are suggesting gold prices could start moving back up.  Marcus Grubb, managing director of investment at the World Gold Council, shared his thoughts on future gold prices by saying, “Gold, used an alternative to the U.S. dollar by investors in search of safety, could see a move higher once markets have greater clarity on a resolution to the Greek debt crisis.  As we’ve seen in previous times in this crisis like in 2008, you typically get a shift into gold once it becomes clear what the scenario is going to look like.  At the moment we still don’t know what the scenario will look like.  On the other side, investors have been selling gold as they’ve raised cash weightings, moved into the dollar, invested in Treasurys.  They’ve sold gold in order to repair damage in their portfolios.”

Jim O’Neill Goldman Sachs strategist spoke with CNBC regarding how investors and the market are reacting Europe’s financial mess.  “I can sort of see why people are freaking out.  The U.S. is on the mend, and yet the markets are now obviously worried about the interconnectivity of bank lending because of the unfortunate recent episode of JPMorgan and, of course, the staggering mess in Europe.”  A final election in June will conclude if Greece will stay with or leave the eurozone.  If Greece leaves, it will then initiate its own currency and will have to start paying off the estimated $618 billion debt.

The U.S. May experience a slower economic growth than previously expected with the end of extended benefits for the unemployed.  This may trigger some to accept jobs they otherwise would prefer not to or give up on searching for a job and drop out of the labor force.  Andrew Tilton, at Goldman Sachs Group Inc. is optimistic about the end of the extended benefit program he said, “There has been an improvement in the availability of jobs.  In a better labor market, people losing their benefits would be more likely to look and to find a job, and less likely to simply drop out.”

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

  • Gold, $1,594.30, Up $0.90.
  • Silver, $28.52, Down $0.27
  • Platinum, $1,468.10, Up $6.80.
  • Palladium, $616.40, Up $10.80.
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Monday links: Gold ends lower on European elections

Gold ends lower on European elections (MarketWatch)

India Removes Excise Tax on Gold Jewelry (WSJ)

Warren Who? Gold Bugs Still Think They Have Right Idea (CNBC)

US consumers upped their borrowing in March (AP)

A post-elections reality check in the Eurozone (LA Times)

US Stocks Mixed After Post-Election Bounce (WSJ)

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Tuesday links: Gold gains on safe-haven flows

Precious Metals

Buying The Dips In Gold Has Been The Right Move For A Decade (Forbes)

Gold Gains For 3rd Session After Late Bounce (WSJ)

Gold Bull Market Has Not Ended Yet: Analysts (CNBC)

Gold ends 1% higher on safe-haven flows (MarketWatch)


Wall Street Hammered by European, Economic Woes; Dow Slides for Fifth Day (Fox Business)

US Stocks Flirt With Worst Session Declines Of 2012 (Nasdaq)

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