Morning Gold Fix: June 1, 2010
Our latest daily commentary addition courtesy of www.fmxconnect.com
On Monday, the ECB made a statement that was not shocking to us, but apparently was relevant to the 3 or so people left with long positions in the Euro and the E-zone banks. Reuters reported, "The European Central Bank warned on Monday that euro zone banks faced up to 195 billion Euros in a "second wave" of potential loan losses over the next 18 months due to the financial crisis, and said it had increased purchases of euro zone government bonds." The result of that statement and it implications left the Euro down 1.3 % as of this writing, with equities down across the board, and the barbaric relic Gold up 10 dollars.
We do not see textbook default as something on the horizon for Greece or other E-zone countries. For deflation and deleveraging, that’s another story. The velocity of money is imploding as banks hoard what they need to protect balance sheets from a true valuation of their assets. Economic nationalism is emerging, as evinced by Germany’s ill-communicated decision to ban short selling. Those banks that will lend need to know their client by first name and hug their babies. International trade in Europe, we feel, is dying.
So if there is little chance of default and deflation is the word, why is gold rallying? In short, because its a currency. Just wait until the dollar gets competitively devalued for export purposes and Voila, it will change back to a dollar priced commodity. Gold is in the sweet spot, so to speak. Forget who is buying it. We want to know, Who is selling it? Not banks, not investors, not freaked out E-zone people. The sellers are hedgies with margin calls and tight stops. Pray that we get a 300 drop if you are a buyer, but don't bet on it. For Market Prices Click Here