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  • Euro survival uncertain as Italy and Spain yields surpass bailout territory

    Gold in your handThe gold price took a hit yesterday, falling close to $1,700 before once again rebounding to $1,732 per troy ounce. Despite a large increase in central bank demand and investment demand, both in Europe and in Asia, turbulence in precious metals does not come unexpectedly. MF Global’s bankruptcy has the potential to affect a large number of positions in commodities markets, once more highlighting the important difference between paper gold and physical gold.  As James Turk never tires of reminding us, the lack of counterparty and default risk is a big feature of physical gold bullion, that sets it apart from almost any other asset class.


    The European bond markets keep bringing us an unending supply of scary headlines. Risk premium is once more the word of the month. ECB bond buying has reached the kind of level that gives Germans nightmares and belies any assurances that Mario Draghi made about his Bundesbank-like central banking philosophy. Despite all this intervention, both Spain and Italy are now close or past 7% interest rates on their 10-year bonds. That is bailout territory and since both these countries fall into the “too big to fail” category, politicians are scrambling to find a way to mimic the Fed without looking like the ECB has gone rogue. Trial balloons, such as using the IMF as an intermediary lender with ECB funds, and scare tactics alternate in the headlines with calls for a bigger monetary gun.

    Euro insolvency territory


    A lot of attention is focusing on Spain this week, not just because of their rising bond yields, but also because elections this weekend add extra uncertainty to the mix. Earlier this week Madrid hosted the III Gold & Silver Meeting, with the participation of James Turk, Chris Martenson, Juan Castañeda and G. Edward Griffin, all known to our readers. Attendance was record breaking and the talks extremely thought provoking, as well as incredibly relevant to our current situation. All agreed that we shall see paradigm shattering changes in the near future: in our monetary system, in our energy consumption and in politics, and that it is extremely important that people educate and prepare themselves.


    As far as the Euro is concerned, things are moving so fast that any careful observers must be feeling dizzy, just a few weeks ago we were talking about the “periphery” and now even France is receiving warning shots both to its credit rating and bond yields. Across the Atlantic the “supercommittee” seems set to replay the August debt-ceiling charade.


    Hold on for a wild ride, and hold on to your physical gold and silver.

    Nov 18 10:32 AM | Link | Comment!
  • Shanghai Gold Exchange raises margin requirements

    China goldThis morning the Shanghai Gold Exchange announced that it is raising the margin requirements for local silver contracts from 15 to 18%. China's largest exchange for precious metals such as gold and silver based this decision on the increased volatility in the precious metal sector. According to Reuters, these new margin requirements will take effect next Monday. During this year, the CME Group, owners of the New York commodities exchange Comex, repeatedly introduced higher margin requirements for silver contracts at the futures and option markets.


    This unexpected hike at China's largest exchange will probably cause investors to sell, since they will have to deposit more funds in order to meet the new margin requirements. Liquidation is the usual consequence when investors cannot follow their broker's margin call. Although the Shanghai Gold Exchange explained that these new regulations are aimed at reducing the volatility in the local silver markets, at first this will trigger a contrary development. Involuntary liquidation will probably increase price oscillations, and local silver prices might even plunge. This past spring the CME Group repeatedly raised its margin requirements for silver contracts, causing the global silver price to drop around 40%. Experts believe that these new regulations at China's largest precious metal exchange will negatively affect local gold and silver dealers who hold futures trading accounts.


    On Thursday the World Gold Council (WGC) announced that by the end of the year China's gold demand will have soared to 750 tons, since demand from both local jewelers and investors continues to be very high. Fears of a growing inflation are driving Chinese savers to transfer their paper currencies into tangible assets, which benefits the precious metals sectors. According to the latest Gold Demand Trends report by the WGC, during the third quarter Chinese investor's demand for gold bars and coins rose 24% in comparison to the same period last year. Sales soared to a total of 60.2 tons, while Chinese investment demand keeps hitting one record high after another. During the first nine months of 2011 Chinese gold sales have registered a total 204,1 tons. In comparison to the same period last year, during the third quarter gold demand from Chinese jewellers rose 13% to 131 tons. In comparison, worldwide gold demand from jewellers reached 465,5 tons - a 10% decrease. On the contrary, in the third quarter global investment demand climbed 33% to 468.1 tons in comparison to the same time period last year.


    Growing fears of a possible collapse of the global financial system is triggering this development, with Europe's banking systems being the main problem child. There are signs that the European monetary union could fall apart in the near future. Cautious investors are therefore buying precious metals to hedge from a cascade of defaults and to invest their capital in stores of value. According to the WGC gold is an excellent store of value and a safe haven that protects investors when times get rough.


    Euro physical gold demand by country
     Roman Baudzus

    Nov 18 10:31 AM | Link | Comment!
  • Traders bullish on gold price

    Neon gold sign 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 bookCurrency 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 (NYSE: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.

    The GoldMoney News Desk

    Nov 11 9:21 AM | Link | Comment!
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