Merkel backs euro, may not back Greece


U.S. stock futures received a boost this morning, thanks to German Chancellor Angela Merkel.  Overnight, Merkel reaffirmed Germany’s commitment to the euro, much like what European Central Bank president Mario Draghi said recently.  “With Merkel voicing her support for Draghi’s plans and restating that all measures would be taken to defend the euro, investors are breathing a sigh of relief this morning,”” said Mike McCudden of Interactive Investor.

Speculation that a Greek exit from the eurozone is building today, as Greek Prime Minister Antonis Samaras is scheduled to meet with Merkel today and French President Francois Hollande Saturday.  Recently, there has been talk of Greece seeking to extend their austerity program over four years instead of the originally-agreed-upon two years, which may not sit well with Germany and France, who are reportedly finished compromising with Greece.  Samaras and his political party promised this extension during elections in Greece, and not being able to obtain it may cause further political issues in the country.

Gold and Silver prices have recovered from slight early morning losses on Merkel’s pledge to the euro.  Nick Tevethan of ANZ in Singapore said, “The (Gold) market is still moving on changing expectations of central bank actions, and is so far unwilling to push prices out of the $1,590 to $1,630 range.”  The Federal Reserve’s Jackson Hole, Wyo. meeting at the end of the month is likely to send Gold out of that range.

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

  • Gold, $1,618.90, Up $1.20.
  • Silver, $28.35, Up $0.03.
  • Platinum, $1,458.50, Up $22.30.
  • Palladium, $595.30, Up $10.30.


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Investors look for monetory easing

The global economy is slowing, and that is driving a higher demand for Gold. Economic issues have been abundant lately. The situation in Europe has shown no signs of improvement. China’s economy has slowed to a pace not seen in almost three years. The reports in the United States also show a slowdown in key economic areas. “Issues surrounding Europe’s debt crisis and a slowing economy in the U.S. and China will offer support to (Gold) prices,” said Sun Yonggang at Everbright Futures Co.

On the European front, many observers say that Germany holds the key to economic recovery for the entire region. While that might be true, don’t expect the German people to agree to that theory. “Right now, people are making the same mistake and assuming that what is good for Volkswagen and BMW is good for Germany. But that isn’t true, either. The voters have already caught on. Whatever bailout their leaders might agree to at one of the endless ‘save the euro’ summits will simply get thrown out at the ballot box,” said Matthew Lynn, the founder of Strategy Economics.

In the United States, much talk has been about the lack of action taken by the Federal Reserve. With the reports of manufacturing and employment slowing, the conditions could be pointing toward another round of monetary easing by the Fed. “Extending Operation Twist was a less overt move for the Fed to keep interest rates low, but I think economic conditions are moving in a direction that it could become necessary for the Fed to pump money into the system in a more obvious way through QE3,” said Tom Schrader, managing director at Stifel Nicolaus.

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

  • Gold, $1,581.30, Up $0.00.
  • Silver, $27.27, Up $0.32.
  • Platinum, $1,430.10, Up $0.40.
  • Palladium, $584.00, Up $6.50.
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European summit not looking good; dollar rising

Precious metals prices are weathering the blows of investors concerns over the eurozone debt crisis. The concerns ahead of the European Union summit, has influenced investors and even world markets. The rupee continues to struggle, which has curbed the primary gold-investing nation of India’s normal buying. Analyst Robin Bahr said, “There’s no semblance of a safe-haven at the moment but as the price goes lower that bid does come back as you maybe get some renewed investor interest – sovereign wealth funds and central banks looking to nibble away and even some physical buying.”

The concerns now are growing, as concerns over Germany’s own economic issues mount. As executive and consumer sentiment fell from 90.5 in May to 89.9, the lowest for Germany since late 2009 and unemployment is on the rise. The issue is that now core member nations, not just secondary nations, are affected by the growing debt crisis. Economist Christoph Weil said, “Germany won’t be able to disconnect from the euro-region developments… The second quarter will show an economic contraction and there are no signs of improvement for the following three months. Whether the situation stabilizes afterward hinges decisively on the euro crisis and latest developments are no real reason for optimism.”

The pressure continues to build for German Chancellor Angela Merkel within the European Union as she continues to be attacked on all sides from nations that find her intransigence off-putting. However, it is not just her partner nations, but she is even pressured globally. The issue is that as unpopular as her beliefs are in the EU, they are quite popular with the German people. Billionaire George Soros feels her position is a bit myopic. He said, “Merkel has realized that the euro is not working, but she cannot change the narrative she has created because that narrative has caught the imagination of the German public, and the German public has accepted it.”

At 9:00 a.m. (EDT) – the APMEX Precious Metals spot prices were:

  • Gold – $1,570.10 – Down $9.90.
  • Silver – $26.96 – Down $0.11.
  • Platinum – $1,402.30 – Down $9.50.
  • Palladium – $577.00 – Down $3.80.
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Investors nervous; Spain to request aid

American stock futures are taking a hit this morning, now that investors have had a day to digest the big news from yesterday.  Federal Reserve Chairman Ben Bernanke’s reluctance to acknowledge monetary stimulus had a big impact on market sentiment.  China is expected to release economic data this weekend, and some are worried that yesterday’s interest rate cut in that country could signal disappointing numbers.  David Morrison of GFT Markets wrote that “investors are becoming increasingly jittery as we head into the weekend.  As a consequence, many are taking the opportunity to take some risk off the table and book profits.”  Precious Metals are also trading lower this morning as a result.

Reuters is reporting that Spain could request aid for its struggling banking sector this weekend.  Spain would be the fourth country to appeal to the eurozone for aid during the region’s debt crisis.  According to sources, finance ministers are holding a conference call Saturday, and that is when the request is expected.  A senior German official said that after yesterday’s downgrade of Spain’s sovereign credit rating, “The government of Spain has realized the seriousness of their problem.”

Echoing sentiments from many other pundits, Harvard Professor Martin Feldstein said that Greece’s economy is beyond repair, and that the only option they have left is to leave the eurozone.  “Letting Greece go will be painful in the short run but will be better for Greece, and for Europe, in the long-run,” said Feldstein.

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

  • Gold – $1,576.40 – Down $11.10.
  • Silver – $28.24 – Down $0.38.
  • Platinum – $1,417.90 – Down $25.00.
  • Palladium – $609.40 – Down $16.40.
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Credit Dries Up for Spanish Banks

Spain may be required to accept a bailout soon as the country’s Treasury Minister told Spanish radio listeners today that it’s “technically impossible” for Spain to bail itself out. Spanish banks are suffering from an overload of debt from the country’s bursting housing bubble that was fueled by cheap interest rates after Spain joined the eurozone. Bond yields on Spanish sovereign debt have tipped near the 7% mark that signals markets are anticipating a default, and have been trading at 5.48% premium to safe-haven German bonds, indicating reluctance to loan the government more and more money. Spain will attempt to issue $2 billion more euros in debt on Thursday, which will be a test of market sentiment.

Famed hedge fund manager George Soros estimates Europe has three months to address the crisis. “The heavily indebted countries need relief on their financing costs. There are various ways to provide it but they all need the active support of the Bundesbank and the German government,” Soros said. “Nothing can be done without German support.” While he does not expect a full-blown collapse of the euro, Soros expects Germany’s economy to weaken and the resolve of German citizens to soften to the point that they will be increasingly resistant to assist with further bailouts. Soros, a noted gold bug, rose to fame in the early 1990’s by betting against the British pound, earning him the title, “The Man Who Broke the Bank of England.”

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

  • Gold, $1,617.60, Up $4.20.
  • Silver, $28.57, Up $0.48.
  • Platinum, $1,437.20, Up $7.90.
  • Palladium, $624.30, Up $10.30.
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Markets Fall as Europe Fears Swell

Gold retreated today as Europe continued to fan the flames of fear across the globe.  Markets were in selloff mode, as more than 2/3 of stocks on the New York Stock Exchange lost value and oil fell below $80 a barrel for the first time in eight months.  “Concerns over the prospects of Greece leaving the European Union and the resulting impact on the euro zone’s future economic health had sellers out in force,” said Alan Herbst, a principal at Utilis Advisory Group.

Despite gold’s drop in price recently, many analysts remain bullish on the long-term prospects.  “I remain constructive on gold as a store of value, or an alternative currency, but instead investors are using it as a source of cash or stepping over to go to the more traditional bastions of safety, as in the German bund, the U.S. dollar or Treasurys,”  said Mark Luschini, chief investment strategist at Janney Montgomery Scott. It seems that investors are using gold as an insurance policy, and filing claims to raise their cash positions.

Speculation abounds as to who will be tapped to fill the job of Treasury Secretary once Timothy Geithner steps down after the November elections.  The new secretary will undoubtedly have a full plate of issues to deal with, from a trillion-dollar deficit in the American budget to a debt crisis in Europe and our strategic relationship with China.

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

  • Gold, $1562.80, Down $15.30.
  • Silver, $27.86, Down $0.41.
  • Platinum, $1427.40, Down $33.00.
  • Palladium, $596.00, Down $21.60.
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