Best of the Week
Most Popular
1.Election Forecast 2015 - Opinion Polls Trending Towards Conservative Outright Win - Nadeem_Walayat
2.UK Solar Eclipse - End Time Sign, Judgement Day, Doomsday! - Nadeem_Walayat
3.Gold And Silver - When Will Precious Metals Rally? Not In 2015 - Michael_Noonan
4.Preparing for the Next Stocks Bear Market - Forecast 2015-2016 - Gary_Savage
5.Is a Stock Market Crash Imminent? - David Eifrig
6.Gold Price Slumps as US Dollar Soars, What's Next? - Nadeem_Walayat
7.US Dollar Forex Pairs and Gold Chartology - Rambus_Chartology
8.Election Forecast 2015: The Day Labour Lost the General Election - Nadeem_Walayat
9.The ECB Should End QE Next Month - EconMatters
10.Silver Price Poised to Surge - Zeal_LLC
Last 5 days
Election Forecast 2015 - Debates Boost Labour Into Opinion Polls Seats Lead - 30th Mar 15
Economic Recovery, Geopolitics and Detergents - 30th Mar 15
U.S. Dollar, Commodities and the Gold Miners GDXJ ETF Analysis - 30th Mar 15
Stock Market Short-term Downtrend - 30th Mar 15
David Cameron Election 2015 Debate Facts Check - Employment, Immigration, Debt & Deficit - 29th Mar 15
Stock Market About Ready to Crash! - 29th Mar 15
Reflections in a Golden Eye - Gold Market Rejection, Repatriation and Redemption - 28th Mar 15
Stock Market Inflection Point - 28th Mar 15
Gold And Silver - What Moved Price? Bab el-Mandeb And Uranus Square Pluto. What?! - 28th Mar 15
Stock Market Investment Parachutes; Do You Have Yours? - 28th Mar 15
Peak Gold Misunderstanding, is Gold About to Run Out? - 28th Mar 15
Deflation Watch: Key U.S. Economic Measures Turn South - 27th Mar 15
The Hard-Earned Truth About Recreational Real Estate - 27th Mar 15
Bitcoin Price Still in Important Territory - 27th Mar 15
Stocks Bear Market Conditions - Index Market Range Warning - 27th Mar 15
BEA Leaves Q4 2014 U.S. GDP Growth Essentially Unchanged at 2.22% - 27th Mar 15
Brazil Economy Victim of Vulgar Keynesianism - 27th Mar 15
Gold to Fuel Silver Price Upleg - 27th Mar 15
Gold and Silver Stocks Will Rise Again! - 27th Mar 15
Risk of ‘World War’ between NATO and Russia on Ukraine as Yemen Bombed - 27th Mar 15
FOMC Minutes Turned The Gold Tide - 27th Mar 15
Sheffield Hallam Election Battle 2015 - Lib Dems Go to War Whilst Labour Sleeps - 27th Mar 15
Gold Effect On Mining & Shale Wasteland - 27th Mar 15
How Stock Investors Should Play the 2016 Presidential Race - 26th Mar 15
MidEast Energy Alert: Why the Crisis in Yemen Could Get Ugly Very Fast - 26th Mar 15
Stock Market Downward Spiral of Dumbness - 26th Mar 15
The Monetary Approach Reigns Supreme - 26th Mar 15
Stock Market Large Gap Down, Despite the Algos' Push Back - 26th Mar 15
Crude Oil Surges, Gold price Spikes as Middle East Tensions Escalate - 26th Mar 15
The U.S. Housing Market Recovery Is Fabricated Optimism - 26th Mar 15
Why Yemen Is The Next Saudi-Iranian Battleground - 26th Mar 15
The Crude Oil Price Crash and China Economic Slow Down - 26th Mar 15
Global Financial Markets Are More Distorted Than Ever Before - 26th Mar 15
One More Stock Market Rally and Then a Huge Drop Expected - 26th Mar 15
Danger Will Robinson - Stock Market Crash Warning - 25th Mar 15
Learn the Basics of Corrective Elliott Waves - 25th Mar 15
Why CNBC Is Hazardous to Your Financial Health! - 25th Mar 15
Will Your Retirement Accounts Survive The Coming Tax Code "Revolution"? - 25th Mar 15
US Dollar - Americas Phoenix - 25th Mar 15
California’s Epic Drought: Only One Year of Water Left! - 25th Mar 15
What’s Wrong With Silver? - 25th Mar 15
SPX Futures Appear Weak. WTIC and Gold May Be at Max Retracement - 25th Mar 15
We’re at the Dawn of a “New Energy Age” - 25th Mar 15
A Very Weak U.S. Economic Recovery - 25th Mar 15
Zero UK CPI Inflation Rate Prompts Deflation Danger Propaganda For Fresh Money Printing - 25th Mar 15
Stock Market NYSE Hi-Lo Index Aggressive Sell Signal - 24th Mar 15
Palladium Commodity Price Forecast - 24th Mar 15
Bitcoin Price Gearing Up for a Fall - 24th Mar 15
Safety Deposit Boxes In UK Being Closed By ‏HSBC – Not Closing Gold Vaults - 24th Mar 15
Japan Short Term Gains And Long Term Disaster - 24th Mar 15
China's Fragile Evolution - 24th Mar 15
David Cameron Announces Resignation Even Before Being Re-elected, Handing Labour 6 Seats - 24th Mar 15
City of London's Ownership of American Colonies - 24th Mar 15
Stock Market Reversal May Have Begun - 24th Mar 15
Casey Gathers Top Gold Experts to Share Secrets for Making Money in Any Market - 24th Mar 15
Thoughts on The Current Crude Oil Market - 24th Mar 15
U.S. Economy Still on Life Support - What Your Governments Hiding From You... - 24th Mar 15
UK Election Forecast 2015 - Budget Bribes Fail, SNP Insurgency Catastrophe - Video - 24th Mar 15
Is Stock Market Minor Top Taking Hold? - 23rd Mar 15
Greece and EU Running Out of Time as Bank Runs Intensify - 23rd Mar 15
Stock Market Slightly Negative Expectations Following Last Week's Rally - 23rd Mar 15
This Rising Interest Rates Play Could Make You a Quick 55% - 23rd Mar 15
Platinum Commodity Price False Break Low - 23rd Mar 15
The Real Reason The American Dream is Unraveling - 23rd Mar 15
Election Forecast 2015 - Budget Bribes Fail to Impress Voters, Tory's Lose Seats in Opinion Polls - 23rd Mar 15
Silver Price Reliance During U.S. Dollar Rally - 23rd Mar 15
old Price Outlook Dramatic Improvement Following US Dollar Topping Action - 23rd Mar 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

US Economy Still on Life Support

Gold Gains as Eurozone Optimism "May Fade" Following Details

Commodities / Gold and Silver 2011 Oct 27, 2011 - 09:47 AM GMT

By: Ben_Traynor

Commodities

Best Financial Markets Analysis ArticleTHE SPOT MARKET gold price rallied to $1725 an ounce Thursday lunchtime in London – 5.1% up from the start of the week – following a mid-morning dip.

Silver prices continued to see-saw around $33.50 per ounce – 6.7% up for the week so far.


Stock markets meantime surged throughout the morning following news of an agreement between Eurozone leaders at yesterday's crisis summit.

Commodity prices also rallied strongly, while government bonds sold off.

"The optimism could soon fade, which could see participants once again adopt a risk-off stance," warns Marc Ground, commodities strategist at Standard Bank.

"However, given gold's close co-movement with equities recently (the last few days excluded), it is uncertain whether the metal will benefit from a market returning to risk aversion."

The gold price "has come under some pressure," adds Nikos Kavalis, commodities strategist at Royal Bank of Scotland.

"But [it] has been supported by good buying from private banks."

Private sector creditors will take a nominal loss of 50% on their Greek bond holdings, Eurozone leaders agreed early on Thursday morning, following eight hours of negotiations.

"Together with an ambitious reform program for the Greek economy, the [50% haircut] should secure the decline of the Greek debt to GDP ratio with an objective of reaching 120% by 2020," said the official Euro Summit Statement.

Banking sector representatives had previously offered to accept a haircut of 40%.

Eurozone leaders, however, invited the banks' representatives to yesterday's summit "not to negotiate, but to inform them on decisions taken by the 17 [Eurozone member countries]," French president Nicolas Sarkozy said.

Politicians threatened "to move toward a scenario of total insolvency of Greece, which would have cost states a lot of money and which would have ruined the banks," according to Luxembourg's prime minister Jean-Claude Juncker – who chairs the Eurogroup of single currency finance ministers.

The European Central Bank has repeatedly said any losses should be voluntary in order to avoid a credit event – which could trigger payments on credit default swaps, derivative contracts that act as a form of bond insurance.

However, "as far as the analysis for CDS purposes goes [this agreement] doesn't change things," reckons David Geen, general counsel trade body the International Swaps and Derivatives Association.

"As far we can see it's still a voluntary arrangement and therefore we are in the same position as we were with the 21% [haircut] when that was agreed [in July]."

Politicians also agreed to "leverage the resources" of the Eurozone's bailout fund, the European Financial Stability Facility – up to a reported €1 trillion, according to some reports. It remains unclear, however, exactly how this will be done.

"It will be important to detail further the modalities of how this enhanced EFSF will operate and deliver the scale of support envisaged," said Christine Lagarde, managing director of the International Monetary Fund.

One option – approved by the German Bundestag yesterday – involves using EFSF funds to part-insure new government bonds issues. The other would see the EFSF set up a special purpose vehicle which would seek investment from "a combination of resources from public and private financial institutions and investors," according to the official statement.

"The EFSF will have the flexibility to use these two options simultaneously," the statement added.
Sarkozy was due to speak to China's president Hu Jintao this afternoon, while Klaus Regling, chief executive of the EFSF, is expected to fly to China tomorrow.

Other members of the BRICS – the group of emerging nations that comprises Brazil, Russia, India, China and South Africa – are however reportedly reluctant to provide funding directly to Europe.
"Brazil is not considering it," the country's finance minister Guido Mantega said yesterday.

"I believe that European countries do not need funds from Brazil to buy bonds...They have to find solutions to the European problems within Europe."

Europe's leaders also agreed that the continent's banking sector requires "a significantly higher capital ratio of 9%." Banks will have until the end of June next year to raise fresh capital.

"Banks should first use private sources of capital...[and they] should be subject to constraints regarding the distribution of dividends and bonus payments until the target has been attained. If necessary, national governments should provide support, and if this support is not available, recapitalization should be funded via a loan from the EFSF in the case of Eurozone countries."

France's central bank reports that the country's four largest banks – which make up 80% of the French banking sector – will need to make up a combined shortfall of €8.8 billion to meet the new requirement. Germany's Commerzbank says it needs €2.9 billion.

Despite this, banking stocks were the biggest gainers as European stock markets rallied strongly Thursday morning – with Germany's DAX up over 4% by lunchtime.

"While the headlines look good, the devil is in the details," warns Damien Boey, Sydney-based equity strategist at Credit Suisse.

"On a long view, I'm bearish on the end-game for all the highly indebted economies (including Europe, the US, Japan and the UK)," adds Gerard Minack, chief market strategist at Morgan Stanley.

"There is no historical precedent for economies as indebted as these to avoid default. There are two ways to default: open default typically associated with recession/depression, or surreptitious default associated with inflation/hyper-inflation."

"The deal isn't the game changer," says Dominic Rossi, chief investment officer at Fidelity.
"The eye of the storm will now move to Rome and its fragile government...Italy's 120% debt-to-GDP doesn't look any more sustainable today than yesterday. Europe is destined for a multi-year workout during where economic growth will be very restrained."

Away from Europe, provisional US third quarter economic growth data are published this afternoon, with most analysts forecasting a slight improvement on Q2's 1.3% year-on-year GDP growth.
"With the heat off Europe for the moment, todays US economic data could be the news to look out for," reckons one London-based gold bullion dealer.

"Markets will be particularly keen to see whether GDP will meet or surpass the predicted improvement, but expect a wobble if figures fall short."

By Ben Traynor
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014