Gold and silver prices struggled yesterday, as traders sold commodities and the dollar strengthened against the euro. Though for the moment gold remains pinned below resistance at $1,800 per ounce, a new survey from Bloomberg shows 21 of 22 gold traders and analysts expect Comex gold prices to rise in the next week – the highest bullish proportion in such a survey since April 2004. This gold survey has forecast prices accurately in 223 of 387 weeks – which is just 58% of the time – but such strong bullishness among the respondents relative to the norm perhaps indicates good short-term prospects for the yellow metal.
Events in Europe are continuing to drive more people around the world into physical bullion. Yesterday, in a slightly farcical twist to the euro crisis, Standard & Poor’s “accidently” downgraded France, before issuing a clarification a couple of hours later that insisted this was a “technical error”. Unsurprisingly, the French government was distinctly un-amused by this, and the French regulator AMF has started an investigation into this incident.
The 10-year Italian bond yield fell yesterday, however, which will offer Eurocrats some cheer as we head into the weekend. As Jim Grant pointed out on Bloomberg yesterday, it seems unlikely that the yield fell as a result of any change in market sentiment with regards Italy; what we’re looking at here is European Central Bank intervention in order to cap rates. As Grant stated:
“The Italian yields did not fall on their own. It raises questions of overall integrity of market prices. In the US the Fed has nationalised the yield curve. In Europe much the same is going on: the SNB (Swiss National Bank) is expanding its balance sheet at astonishing rates of speed. The world over there is seeing immense money printing and there is a huge race to debase on the behalf of the sponsors of paper money.”
Jim Rickards also appears with Grant in this interview, discussing his new book Currency Wars – a must read for anyone seeking a greater understanding of the financial markets. James Turk’s interview with Rickards is well-worth watching, as is his conversation with Jim Grant.
Though the ECB remains forbidden from directly buying government, under its Securities Markets Programme (SMP) provisions in the Lisbon Treaty, there remains no limit to the amount of eurozone government bonds that the ECB is allowed to purchases in the secondary market. Thus, it can in reality continue its slow but steady monetisation of southern European debt. Whether or not the Bundesbankers will let this slide in the interests of “European solidarity” remains to be seen.
But just as a reminder that Europe isn’t the be all and end all of financial concerns at the moment, yesterday saw news that Jefferson County, Alabama has declared bankruptcy. This county is the most populous in the state of Alabama (the county seat is located in the city of Birmingham), with a population of 658.466. This is the largest municipal bankruptcy in the US history, and a likely harbinger of more widespread recognition of the serious fiscal problems facing municipalities across America. The next big act in the on-going financial crisis could be starting to play out.