Best of the Week
Most Popular
1.Is the Stocks Bull Market Over? Dow Trend Forecast into End January 2015 - Nadeem_Walayat
2.Gold and Silver Stocks Apocalypse Now, Bear Market Review - Rambus_Chartology
3.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
4.Ebola Terror Threat Suicide Bio-Weapons Threatens Multiple 9/11's, Global Plague - Nadeem_Walayat
5.Second-Richest Man Says Mortgages Now a "No Brainer" - Dr. Steve Sjuggerud
6.Gold And Silver Still No End In Sight - Michael_Noonan
7.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
8.The Gold Bug is Set to Bite Back - EWI
9.How Alibaba Could Capitalize on the EBay-PayPal Split - Frank_Holmes
10.The Consequences of the Economic Peace - John_Mauldin
Last 5 days
Gold Price Rebounds but Gold Miners Struggle - 25th Oct 14
Stock Market Buy the Dip or Sell the Rally - 25th Oct 14
Get Ready for “Stupid Cheap” Stock Prices - 25th Oct 14
The Trend Every Nation on Earth Is Pouring Money Into - 25th Oct 14 - Keith Fitz-Gerald
Bitcoin Price Decline Stopped, Possibly Temporarily - 25th Oct 14
Bullish Silver Stealth Buying - 24th Oct 14
Blood in the Streets to Create the Gold Stocks Investor Opportunity of the Decade - 24th Oct 14
Swiss ‘Yes’ and ‘No’ Gold Initiative Campaigns Compete at Launches in Bern - 24th Oct 14
War And The Law Of Unintended Consequences - 24th Oct 14
Tesco Meltdown Debt Default Risk Could Trigger a Financial Crisis in Early 2015 - 24th Oct 14
Saudi Move to Cut Oil Prices Is Now Russia's Biggest Economic Threat - 24th Oct 14
US Stock Market Top Is Now In Sight - 24th Oct 14
New Profit Points in the Shifting Balance of Power, Welcome to Saudi America - 24th Oct 14
QE Failure & Folly Of Paper Mache, Treasury Bond Integrated Lifeline Patches - 24th Oct 14
U.S. Economy Faltering Momentum, Debt and Asset Bubbles - 23rd Oct 14
Annuities - Afraid Your Money Will Vanish before You Do? - 23rd Oct 14
What Debt Deleveraging? - 23rd Oct 14
How to Profit from Massive Spin-Offs with Just One Play - 23rd Oct 14
Evaluating Ebola as a Biological Weapon - 23rd Oct 14
Euro, USD, Gold and Stocks According to Chartology - 23rd Oct 14
Why You Should Always Be Invested in the Stock Market (Even Now) - 23rd Oct 14
Five U.S. Housing Market Warning Signs Point to Real Estate Market Downturn - 23rd Oct 14
The Better Short: Gold or Silver? - 23rd Oct 14
Focus on Graphite Companies with Green Energy and Technology Strategies - 22nd Oct 14
Crude Oil Price Hitting Bottom - 22nd Oct 14
Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - 22nd Oct 14
Gold Or Crushing Paper Debt Stocks Crash? - 22nd Oct 14
India Gold Demand Surges 450% and Bank of Russia Demand At 15 Year High - 22nd Oct 14
Bitcoin Stock Exchange Could Be "More Valuable than Alibaba" - 22nd Oct 14
Currency War - How to Profit from a Stronger U.S. Dollar - 22nd Oct 14
Banks Hold Treasuries and Make Loans- 22nd Oct 14
Gold and Silver Timing is Everything - 22nd Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VII) - 22nd Oct 14
Follow the Baby Boom to Biotech Stock Profits - 22nd Oct 14
Copper, Nickel and Zinc Won't Be Cheap for Long - 22nd Oct 14
How Will We Know That the Gold & Silver Price Bottom Is In? - 21st Oct 14
Is Gold as Dead as Florida Hurricanes? - 21st Oct 14
First Swiss Gold Poll Shows Pro-Gold Side In Lead At 45% - 21st Oct 14
The Similarities Between Germany and China - 21st Oct 14
The REAL Reason Why the Stock Market Turned Down - 21st Oct 14
Petrobras is a 'Scheme, Not a Stock' - 21st Oct 14
Stocks Bear Market Indicator Is Off the Mark - 20th Oct 14
Stock Market Ideal Turning Point is at Hand - 20th Oct 14
Investors Quit Complaining, The Environment is Perfect Right Now - 20th Oct 14
Ebola Armageddon Could Trigger a Rebirth in Gold and Silver Prices - 20th Oct 14
Gold vs Euro Risk Due To Possible Return of Italian Lira - Drachmas, Escudos, Pesetas and Punts? - 20th Oct 14
Stocks Rebounded Following Recent Sell-Off, But Will It Last? - 20th Oct 14
U.S. Responsible for West Africa Ebola Outbreak Says Liberian Scientist - 20th Oct 14
Stock Market Intermediate B Wave has Started - 20th Oct 14
Gold Stocks Analysis – FNV, CG, NCM, SBM - 19th Oct 14
Stock Market Primary IV Wave Counter Trend Rally - 19th Oct 14
Gold And Silver - Financial World: House Of Cards Built On Sand - 18th Oct 14
Anatomy of a Stock Market Sell-Off - 18th Oct 14
Why OPEC Has Declared an Oil War on Russia - 18th Oct 14
Gold and Silver Extreme Shorting Peaks - 18th Oct 14
Bitcoin Price Fall to $350? - 18th Oct 14
Tesco Supermarket Crisis Worse To Come as Customers Vanish! - 18th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

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.


© 2005-2014 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