Best of the Week
Most Popular
1.Stock Market Continues Defying Gravity, Dow New All Time High - Nadeem_Walayat
2.America Superpower 2016 - Ian Bremmer
3.The US Dollar and the Precious Metals Complex - Rambus_Chartology
4.UK Immigration Crisis Could Prompt BREXIT, Propelling Britain Out of EU Despite German Factor - Nadeem_Walayat
5.The “Real Flash Crash” Will Scare You to Death - Shah Gilani
6.Gold Price Trend Forecast - Bob_Louka
7.UK Deflation Warning - Bank of England Economic Propaganda to Print and Inflate Debt - Nadeem_Walayat
8.Gold Lifeboat to Global Economies “Titanic Problem” Warn HSBC - GoldCore
9.Will Interest Rates Ever Rise? - BATR
10.Who’s Killing the Stock Market? - Shah Gilani
Last 5 days
Investing’s Great Struggle - 29th May 15
How Rich Countries Get Rich - Freedom, Global Poverty, and the Failure of Foreign Aid - 29th May 15
Goldman Sachs Warns “Too Much Debt” Threatens World Economy - 29th May 15
Skunk Works Engineers Supersonic Profits - 29th May 15
Gold, Silver and US Dollar Strength - 29th May 15
This New Currency Could Wipe Out the Euro - 28th May 15
US Housing Market - Something Smells Fishy - 28th May 15
US Economy – Semi b2b Amps Up its Trend - 28th May 15
U.S. Fed Exported QE Travesty: Meet The BLICS Nations - 28th May 15
World War D—Deflation - Secular Bear Markets Analysis - 28th May 15
George Soros Warns of “Third World War” - 28th May 15
Why You Shouldn't Try to Invest Like Warren Buffett - 28th May 15
Stock Markets Buy and Hold is Back! - 28th May 15
We're Now Frighteningly Vulnerable to a Bond Market Crash - 28th May 15
Austerity, Economics and Religion - 28th May 15
National Holidays London and the Magic of Legoland UK Review - 27th May 15
Imminent Stocks Bear Market Signaled by Dow Theory ... - 27th May 15
Gold Price Has Bottomed – More Evidence - 27th May 15
Three Reasons You Shouldn’t Try to Invest Like Warren Buffett - 27th May 15
Gold Is “100% Guarantee from Legal and Political Risks” States Russian Central Bank - 27th May 15
Don't Drown in the Sea of Global Debt - 27th May 15
Three Reasons Why Carl Icahn Is Wrong About Apple Stock - 27th May 15
Crude Oil Price Stochastic Signals - 26th May 15
Why the Stock Market Will Crash - 26th May 15
GDP, Inflation, Employment Economic Statistics: It’s All a Lie - 26th May 15
Introduction to Peak Food - 26th May 15
Should We Dump the Euro? - 26th May 15
A Geopolitical Net Assessment of Europe - 26th May 15
Stock Market Top in Place? - 26th May 15
Best Cash ISA SBI 2.3% - 2.8 Year Fix, UK Interest Rates 2016 - 26th May 15
China Sets Up Gold Bullion Fund For Central Banks - 25th May 15
Is The Silver Trade Getting Crowded? - 25th May 15
Money Murder Mystery: Who Killed the Stock Market? - 25th May 15
Why Do We Celebrate Rising U.S. House Prices? - 24th May 15
Mario Draghi’s Slippery Downward Slope - 24th May 15
Gold : Truth is Stranger than Fiction - 24th May 15
Facebook Stock Price Forecast - 24th May 15
Make a Killing on the Coming Energy "Debt Bubble" - 24th May 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Biggest Debt Bomb in History

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

Biggest Debt Bomb in History