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GoldVest’s Weekly Bullion Report …. The Debt Saga

January 9, 2011

According to Steven Zoernack, Managing Director at GoldVest, European debt is likely to remain in the headlines and with talk that France, a core EU member country, might suffer a debt downgrade if they do not cut their deficit, is likely to keep the market nervous, as it increases the risk that the debt situation in Europe deteriorates further.

Washington, DC (PRWEB) January 7, 2011

According to Steven Zoernack, Managing Director at GoldVest, European debt is likely to remain in the headlines and with talk that France, a core EU member country, might suffer a debt downgrade if they do not cut their deficit, is likely to keep the market nervous, as it increases the risk that the debt situation in Europe deteriorates further.

GoldVest’s Weekly Bullion Report

by Steven Zoernack, Managing Director

Focus: The Debt Saga

Last Week:

  • Bullion prices were in an upbeat mood at the start of last week, with gold rising to a high of $1,408.25 on Tuesday after China refrained from raising interest rates, while eurozone debt jitters intensified as Moody’s put Spain’s credit rating on review for a downgrade. However, the complex turned lower later in the day as the Federal Reserve Open Market Committee maintained its plan to purchase $600bn of bonds but made no comment on any additional quantitative easing.
  • Rising US bond yields – the 10-year note hit a seven-month high of 3.56% – and stronger dollar triggered long liquidation, with gold touching a two-week low of $1,361.40 Thursday while silver set a low of $28.33. Both metals firmed on Friday after Moody’s slashed Ireland’s credit rating five notches, triggering an influx of safe haven demand with SPDR ETF holdings rising 15.1-tonnes. Gold closed the week off 0.25% at $1,377.40, while silver settled at $29.20 with a 2.5 percent gain.
  • Franco-Nevada Corp. agreed to buy Gold Wheaton Corp., in a deal worth approximately C$830m.
  • The Australian Bureau of Agricultural and Resource Economics and Sciences forecast Australia’s gold output to rise 15% to 276 metric tons in the year ending June 2011, as Newmont’s Boddington mine reaches full capacity.
  • The US CFTC announced general rules on the future regulation of exchange trading for the 28 most important listed commodities in the US. Position limits on front-contracts will restrict participants from holding more than 25 percent of deliverable supply.

The Week Ahead:

According to Steven Zoernack, Managing Director at GoldVest, European debt is likely to remain in the headlines and with talk that France, a core EU member country, might suffer a debt downgrade if they do not cut their deficit, is likely to keep the market nervous, as it increases the risk that the debt situation in Europe deteriorates further. Hostilities on the Korean Peninsula are also likely to remain in focus after South Korea carried out a military exercise on Monday and North Korea threatened it would retaliate.

Data-wise, US existing and new home sales, personal income and spending and the UoM inflation expectations, are all likely to be watched closely. However, we would also expect some rotation out of risky assets and into safe-haven assets as traders prepare their books for the Christmas and New Year holidays. With this in mind, we would expect the dollar and gold to close on a firm footing this week.

Focus: The Debt Saga

Despite the ongoing efforts of the collective governments, ECB and the IMF, the huge fiscal deficits – and the associated threat of default by the peripheral eurozone nations – continue to dominate the newswires and in turn traders’ mentality and outlook. A study conducted by the IMF, examining recessions that share the combination of a global recession and financial crisis, suggests that recovery from recession with both these factors tend to be longer and slower than normal recoveries. While recovery is typically seen within five years, history also shows us that financial crises are generally followed by sovereign debt crises, as nations are plagued with a vicious circle of burgeoning deficits, surging debt, downgrades, and eventually default. Portugal, Ireland, Italy, Greece and Spain have all been through the first three stages but the spiral created by investors, who seek higher returns on riskier assets, has raised debt premiums to record levels and will make it harder and harder for these countries to service their debt. Despite the huge IMF/EU bailout package and sweeping austerity measures, the long-term solvency of Greece looks bleak and others may find themselves in a similar situation. The question is how would default affect the financial markets? Certainly the implication would be massive and, as witnessed when the sub-prime/housing bubble burst, would no doubt send investors stampeding towards the exits, sending stocks, commodities and currencies tumbling. But history shows that while financial crises tend to be followed by sovereign debt crises, sovereign debt crises are in turn followed by currency crises ““ something we have already seen early signs of given the volatility in the euro and the dollar. Should a default happen, we would initially expect gold and silver to fall, but the secondary reaction is likely to see their prices surge as investors seek refuge from fiat currencies, says Steven Zoernack.

Technical Analysis ““ Gold

Gold started to show some weakness last week and it looked as though prices could drop back towards the $1,350 area. However, prices gapped higher on Monday and that seems to have taken prices off the danger list – at least for the moment. A move down to close the gap at $1,375 could be entertained without damaging the chart, but a move down and close below the 50 DMA at $1,370 would start to make the market look vulnerable again. The important support line is the lower trend line on the chart which is at $1,350 ““ a break of that level would ring alarm bells. On the upside we would start getting bullish on a close back above the former support line which is at $1,390. The stochastics have swung higher in line with the gap higher ““ this bodes well for the short-term.

Technical Analysis ““ Silver

Silver prices held up better than gold prices last week, according to Steven Zoernack, with the up trend line and recent lows generally holding. This suggests good underlying support that should give confidence to existing longs.

Like gold, prices gapped higher on Monday, prices have already closed the gap but have managed to hold up high. The stochastics have also crossed higher and seem to have done so with determination which bodes well. Judging by the strength of the up trend line, the overall up trend remains strong and that should mean dips continue to attract buying. We would expect good support at the up trend line at $28.76, but should that not hold then between $27.98 and $28.05. On the upside we would start to get increasingly more bullish as priced move up through $29.62, $29.96 and then above $30.20. Overall, expect dips to remain well supported, although the bullish view would change on a close below $27.90.

Conclusion ““ Steven Zoernack feels that Gold and silver prices remain well supported and although heightened tensions between North and South Korea were a factor on Monday, we would say it is the fear of a deterioration in European debt situation that is the main short term driver in the market. Concerns that inflation may reappear before too long also seem to be giving bullion prices a boost. Not that we expect inflation to pick up in the short term, but with better US economic data being seen, the combination of a stronger recovery in the US, plus the loose monetary situation, could raise fears about inflation.

This is also evident in China, where a pick-up in inflation is boosting demand for gold as an inflation hedge. For the moment the EU debt situation seems set to escalate and that is likely to reduce faith in the euro. Therefore we would expect safe-haven buying of gold and silver to continue, says Steven Zoernack

GoldVest

1701 Pennsylvania Avenue NW

Third Floor

Washington, DC 20006

(202) 747-7575

Investor Relations(at)goldvest(dot)org

Steven Zoernack

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For the original version on PRWeb visit: http://www.prweb.com/releases/prweb2011/01/prweb4949624.htm


Source: prweb



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