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Posted: 21 June 2012 - 1 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news
GOLD
 
Thanks to all the media hype about the Greek elections, many people around the world were beguiled into believing that this small country had the power to decide the fate of the euro itself as well as the financial state of the entire world. But, in reality, nothing could be further from the truth. This tiny county has the thirty-fifth largest economy in the world and an exit from the Eurozone would not have caused a global meltdown. However, a default on its debt would have certainly caused some large losses for bond holders of Greek sovereign debt. Nevertheless the narrow margin win by the New Democracy party gave the some relief to the Eurozone.
 
In response to the news, there was brief rally that did not last long as investors and traders realised that the Greek election results have little to do with resolving the underlying problems in the Eurozone. Greece is merely a small part of a much broader crisis whose epicentre has now moved to Spain and Italy. Many voters found themselves in a total quandary as they wondered who to vote for after years of being lied to by their political leaders. It is like having to choose the best of a bad bunch of grapes. But, for now, the leaders of the Eurozone have some breathing space as the Greek people voted for pro-austerity party New Democracy. The conservative New Democracy (ND) which supports the current terms of the bailout package agreed to between Greece and the so-called “Troika” of the European Union (EU), International Monetary Fund (IMF) and the European Central Bank (ECB) eked out a victory in Greece’s parliamentary elections on Sunday, edging out the leftist Syriza party, which is strongly opposed to the austerity measures imposed as part of the country’s bailout. The margin was less than 3 points. In the meantime Spanish bond yields have risen to a euro-era record, well north of 7% after the Eurozone partners agreed to extend up to 100 billion euros ($125 billion) to rescue Spain’s banking sector that crashed in 2008. While the bailout eased concerns about the risk of a total collapse it didn't restore any confidence from markets as the yield on Spain's 10-year government bond jumped sharply by 25 bps to 7.13%, for the first time ever and thus increasing the risks that the Spanish government will need a full bailout of 350-450 billion euros rather than just up to 100 billion euros for its banks. The Bank of Spain reported that bad loans as a percentage of total Spanish lending rose to 8.72% in April from 8.37% in March, the highest since 1994. Moody's recently downgraded Spain to one notch above junk status. Moody's also downgraded the credit rating of Cyprus to Ba3 from Ba1 and is on review for further downgrade. It noted that its’ banking sector is heavily exposed to Greece. Last week, another rating agency, Fitch slashed Spain's sovereign credit rating by three notches to BBB. Fitch rating managing director Ed Parker warned that Spain could miss the deficit by a "substantial margin" next year. Parker also said that if they see "further worsening or more general intensification of the Eurozone crisis, then further negative news could lead to further negative rating action." In the meantime, Spain's Prime Minister Mariano Rajoy told reporters that the deal ensured "the credibility of the euro" and insisted that rather than buckling to pressure for the rescue, he had sought it all along.
 
His government has vowed to slash Spain's public deficit from 8.9% of total economic output last year to just 5.3% this year and 3.0% in 2013. But, economists say Spain faces a daunting task achieving those goals in a period of recession, which reduces tax income, and with unemployment at 25% which raises welfare costs. A US independent rating agency, Egan-Jones warned that Spain and Italy could need a full-scale bailout within six months. Founding Partner and President Sean Egan said that "it makes little sense to separate the banks' credit quality from the governments' credit quality". He predicted that Spain will be "back at the table" and ask for more than the EUR 100b they sought. Last Thursday, U.K. Chancellor, George Osborne, said at the annual Mansion House address that the Bank of England will activate an emergency lending program. The UK Treasury and the central bank have agreed to launch a scheme to stimulate bank lending by offering to loan banks funds at below market rates for a period of perhaps 3 to 4 years. The BOE will also activate the Extended Collateral Term Repo facility which provides 6-month liquidity against a wide range of collateral. Governor, Mervyn King, stated that "the other effect of the euro area crisis has been to create a large black cloud of uncertainty hanging over not only the euro area but our economy too, and indeed the world economy as a whole... With signs of a deterioration in the outlook, especially in world markets, the case for a further monetary easing is growing". His statement to suggest that further asset purchases would probably be announced at the upcoming BOE meetings.
 
As mainstream economists, central banks, politicians, or bureaucrats fail to identify the root cause of the current financial and economic crisis and as the moronic masses continue to have faith in our current leaders, the prudent few, who see how today's fiat money regime is causing seriously harmful economic problems that will ultimately end in a depression on a grand scale, will take the appropriate action to protect themselves. While weak economic data plagues headlines in Europe and the U.S. especially, and as our political and financial leaders find new controls to ring fence individuals in an attempt to stem potential capital flight one, investors who see this, understand that gold and silver offer the only glimmer of hope these days. Now as our financial leaders Investors are really catching on to this gold trend amidst all the national and international fiscal disasters. As G-20 leaders meet in Mexico, don't expect much. But, be sure that this group of leaders will find ways to finance governments and banks at the cost of the individual tax payer. No one really knows what is going to happen in the next five years, but by judging on the events of the last five years, things can only get worse. It is therefore necessary to add precious metals to your investment portfolio- especially gold and silver.
 
TECHNICAL ANALYSIS
 
The recent action of gold signals a positive trend as the price breaches the 50 day MA. If prices remain above $1600 an ounce level, we can expect to see another move to the upside and a break above $1625 an ounce.
 
SILVER
 
Recently, we have seen the price of silver trade a hair away from $29 an ounce, but the price has always pulled back to settle below the mark. Technically, if one looks at the 50 day moving average, one gets the impression that someone out there is desperately trying to keep prices below this MA. After all, a break above this level will have bullish implications that could send the price of silver upwards to test $32 an ounce.
 
The silver price is depressed compared with its historical relationship to gold, one ounce being worth about 56 of silver. The reason, perhaps, has to do with silver’s demonetization and its role as an industrial metal. For now, pricing is managed for industrial use, and industry has a vested interest in keeping the price low. Some analysts believe that for silver to break into the upside in the near term, at least one of two things needs to happen: there must either be significant economic developments or an announcement of considerable monetary easing, preferably from the US Federal Reserve. But, this is not the entire picture when it comes to silver and there are other considerations to take into account such as increasing demand from various sectors especially investor sentiment. Even though global supply from mines in 2011 rose by a modest 1.4% to 761.6 Moz in 2011, and while total silver fabrication demand stood at 876.6 Moz in 2011, down 1.5% but still reaching its second highest level since 2000, recycling still accounted for the deficit in supply. The message is, it does not take much demand to create a severe shortage.
 
The fact is demand for silver is on the cusp of hitting historical highs. Unlike gold, silver has a host of crucial industrial uses. Silver is used in more industrial applications than any other commodity besides oil. Silver is needed in just about every electronic device made — from TVs to computers to electric cameras to iPads. It is also important in batteries, disinfectants, solar energy, and water purification.
 
The list of products that need silver is enormous and constantly growing — including the two biggest areas of all:
  • Photovoltaic cells used in smartphones (1.6 billion cell phones were sold last year)
  • Silver's recent ascent as a leading antibacterial agent being used by hospitals and healthcare facilities around the world (you can buy silver-imbedded Band-Aids!)
Silver inventories have fallen 92% since the start of the 20th century. In the case of gold, 90% of the yellow metal ever mined has been saved, but 90% of all the silver ever mined has been used up for industrial purposes.
 
At the current rate of use, all known silver reserves will be depleted in 29 years.
 
As that date approaches, silver's run-up of the past couple of years will look like a mere blip on the radar screen. Silver's coming surge will give investors the chance to make a killing.
 
This is an amazing opportunity you will not want to miss out on...
 
TECHNICAL ANALYSIS
 
There appears to be constant resistance at $29 an ounce or as the price hits the 50 day MA. However, once silver trades above this level, I believe we will see a rapid climb to the $32 an ounce level.
 
David Levenstein

 


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