Gold and Silver's Daily Review for 30th June 2010
"Tuesday saw a p.m. Fix at $1,234.50 and at London's opening on Wednesday it was $10 up. The morning Fix today was $1,240.50. A look ahead to the rest of this week sees a scene fraught with uncertainty over the news that Europe is pulling withdrawing its quantitative easing to the extent of €442 billion.
We believe this will be extended albeit with more temporary financing. Banks are scared; markets are scared as are the rest of us. On other fronts there are an increasing number of global events that point to a global downturn again. Gold is hesitant as a result. Once the smoke has cleared next week, the gold and silver markets should find direction."
Gold – Very Short-term
It is clear that a double-dip recession is on the way now. De-leveraging in ALL financial markets is likely, but most markets are ready for it as the 2007 de-leveraging got rid of most vulnerable leveraging. But we still expect this to hold back gold and silver prices until it is over. Thereafter, gold faces a deflationary environment. Next week after the U.S. and Canadian holidays the direction will clear again. It will continue to consolidate, but, please note how well gold is holding up as other markets are falling.
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Silver – Very Short-term
Silver is trying to tackle the $19.00 area and is standing at the $18.60 area. It too may be quiet until after the long weekend. Expect a great deal of digestion of market factors to take place over that holiday. Next week may see considerably more vigor in both gold and silver markets.
We will be addressing the issue of "Is Silver de-coupling from gold" shortly, in the Silver Forecaster newsletter.
Gold Price Drivers
We now live in a world after the information revolution. This means that policies or announcement of policy intentions affect consumers, banks, markets and business in general, rapidly. Most importantly, it affects confidence from top to bottom. Government actions of late have damaged confidence and by extension the robustness of developed world economies, such as it was.
While there has been a pick-up in business it lacks that robust quality that comes with confidence in the future. But governments have to battle between financial correctness and good practical sense. A man may have over-borrowed and then agreed to a repayment plan, but he may not be able to stick to it because the expected increase in cash flow has been delayed for reasons out of his control. Therefore two choices lie ahead, to bankrupt him or to give him more time to recover so he can stick to his obligations. Bankrupt him and you have the danger of having to compromise the debt [default and negotiate it down to a repayable level] or destroy his cooperation and turn the debt bad. At international levels such consequences are far more complex and potentially damaging. That's where the world's rich nations are now. They want to cut spending and raise taxes before anyone is certain that the recovery is robust enough to cope. This was tried in the 1930's but under circumstances where economies could cope. On top of that, this is not just the U.S. but the entire developed world. Eurozone problems have knocked the stuffing out of its economies as all, from Germany down, have over-borrowed and need to cut back spending but need time to recover.
Precious metal markets are hesitant in the face of these rising risks and will bide their time until market directions are clear. At the moment deflation, a double-dip recession and some social unrest are on the cards. In 2007, while gold did dip briefly, it recovered and moved to new highs.
Julian D.W. Phillips