by Craig C. Calvin July 28, 2011
EXECUTIVES PRESSURE WASHINGTON ON DEBT DEAL MOODY’S WARNS OF DOWNGRADE CONSEQUENCES
Pressure to come up with an agreement on raising the federal debt limit is being put on Washington lawmakers by the top executives from some of the country’s most prominent financial institutions. In a letter released today, executives from Goldman Sachs, JPMorgan Chase, and Bank of America cautioned that the consequence of not raising the debt ceiling by the August 2nd deadline “would be very grave.” The letter also warned that a default by the U.S. and any credit rating downgrades would damage the confidence of investors and raise interest rates for anyone who borrows.
Moody’s Investors Services is warning that a downgrade of the U.S.’s AAA credit rating could result in a similar cut to the Aaa rating of a large number of other organizations including local state governments, school systems, housing programs, and at least one university. In all, 177 entities have been placed on a ratings review by Moody’s, with the agency stating, “In the event the U.S. government's Aaa rating is downgraded, Moody's will determine the outcome of each review by evaluating the strength of the sovereign linkages to each affected credit, including direct and indirect reliance on federal spending, sensitivity to deteriorating macroeconomic conditions and vulnerability to disruptions in the financial markets."
At 5:15 pm (CT), the APMEX precious metals spot prices were:
- Gold - $1,618.10 – Up $2.90
- Silver - $39.85 – Down $0.01
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Morning Gold & Silver Market Report – 7/27/2011By Peter LaTonaJuly 27, 2011
GOLD RISES AS DEBT CEILING STUMBLESGold prices surged to another new high overnight, as investors seeking to protect their wealth against the possibility of a U.S. debt default sought the safe haven of gold. Silver prices have continued to rise as well and are now at their highest prices since May. Although the consensus opinion is that the debt ceiling will be raised, there is little optimism that a solid plan to reduce long term debt will be passed.
News this morning that President Obama is working with Congress to come up with a “Plan B” is a further indication that the current debt discussions are going nowhere. It is becoming more and more likely that even if a plan is passed to raise the debt ceiling, the U.S. will not avoid a credit rating downgrade. House Speaker John Boehner was forced to postpone a vote of his plan when it became apparent he did not have enough votes. Stephen Green, head of research for Greater China for Standard Chartered Bank commented, “Chinese clients take a more pessimistic view on America's longer-term fiscal health, many of them look at the politics in the U.S. and see that it's so dysfunctional that they're losing hope that the U.S. can actually get its fiscal house in order."
Let’s shift our attention to the debt deal in Europe last week. There are contrasting stories coming out this morning that
European politicians are telling different stories to their constituents about the nature of last week’s agreement to save Greece. This has only underscored the fragility of last week’s deal and put additional uncertainty into the already fragile financial markets.
Back to the U.S.,
the durable goods order log for June just came out with a surprise to the negative as orders dropped 2.1%. Durable goods are those goods expected to last three years or more and they are often seen as a leading indicator of the manufacturing sector.
At 8:00 am (CT) the APMEX precious metals spot prices were:
- Gold – $1624.70 - Up $6.90.
- Silver – $41.15 - Up $0.40.
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SINGAPORE, July 27 (Reuters) - Spot gold hit an all-time
high on Wednesday, for the sixth time in two weeks, as worries
grew whether the United States could avert a debt default while
its two key political parties were still locked in stalemated
talks to raise its debt ceiling.
Spot gold rose as high as $1,625.24, before easing to
$1,624.19 by 0709 GMT. It was up in 16 of this month's 19
trading sessions so far.
U.S. gold GCcv1 also hit an all-time high at $1,625.8.
The U.S. House of Representatives decided to postpone a vote
on a plan to raise the debt ceiling until Thursday at the
earliest, narrowing the chances for a deal to avert a debt
default.
" The same arguments about potential government bond fallout
are still being made," said a Singapore-based trader, " but
people are on the sidelines ahead of the August deadline waiting
to see whether or not the U.S. is going to avoid a technical
default."
Investors have become increasingly cautious as great
volatility is seen ahead of the Aug. 2 deadline however, he
added.
Turmoil in the currency market also helped gold attract some
interest. The dollar sank to a three-month low against a
basket of major currencies.
" It's ambiguous what currencies are the so-called haven in
the middle of all the problems in the West," the trader said.
A small majority of economists polled by Reuters said the
United States would lose its top-notch AAA credit rating from at
least one major rating agency.
Dealers reported muted reaction on Asia's physical market to
gold's rally, as buyers and sellers alike cautiously watch the
outcome of the U.S. debt talks.
" There has been some selling and very small volume of
buying, and people wait to see if the U.S. will default," said
Ronald Leung, physical dealer at Lee Cheong Gold Dealers in Hong
Kong, adding that premiums for gold bars have fallen a little
from last week to 50 cents to $1.1 per ounce over spot prices.
Platinum group metals scored multi-month highs, tracking
strength in gold. Spot platinum hit $1,812.5, its highest
since June 13. It eased to $1,808.45, up 0.4 percent.
Spot palladium reached a five-month high of $842 an
ounce, and was trading at $839.97.
" As gold is at such lofty levels, we might see some
substitute effect (in PGM). There is very strong potential that
platinum group metals continue to move north," said the
Singapore-based trader.
Spot palladium had risen 11.5 percent so far this month, the
second-best performer after silver, which had gained nearly 19
percent in July. Platinum lagged behind other precious metals
with a 5-percent month-to-date rise.
.................................................................................................................
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Gold extends gains as US debt issue heats up
SINGAPORE (Commodity Online) : Gold prices climbed towards yet another record Tuesday after US deadlock over debt ceiling supported the yellow metal’s safe haven appeal amid a weak dollar.
Spot gold was seen trading at $1615.47 an ounce at 3.00 p.m Singapore time while US gold for August delivery was seen trading at $1617.04 an ounce on the comex division of Nymex.
Cash Silver climbed 0.2 percent to $40.4125 an ounce.
Analysts said US President Barack Obama’s remarks on debt ceiling issue in the country that triggered stoking demand for a protection of wealth.
Obama warned that failure to reach agreement to avert default could cause a deep economic crisis and urged for an amicable settlement over the issue.
Analysts said investors are looking forward to see if President Barack Obama's appeal for lawmakers to break a deadlock in U.S. debt talks would succeed, while the euro zone debt crisis lent support.
US lawmakers remained deadlocked on how to tackle the country’s debt crisis and avert a default before an Aug. 2 deadline.
On Monday, Gold prices shot up to record highs on market concerns about the U.S. sovereign debt crisis destabilizing the world’s largest economy, spurring demand for Canadian bonds and currency.
Gold for August delivery added $10.70, or 0.7%, to end at $1,612.20 an ounce on the Comex division of the New York Mercantile Exchange.
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The factors that pushed gold to record highs
LONDON (Commodity Online): After a lacklustre performance in the past few months, the yellow metal has suddenly shot to record highs in the past week which has not surprised those who were consistently bullish on gold. " My forecast earlier this year..of $1700 Gold by year-end 2011 now seems within easy reach," Precious Metals economist and Managing Director of American Precious Metals Advisors said in a note.
What is more surprising is that gold rally has taken place at a time when 'seasonal weakness' should actually keep prices subdued.
ABN Amro Metals Monthly prepared in association with VM Group has highlighted the following factors responsibe for the recent gold rally:
1) Global financial uncertainties: Deteriorating US economic data and deadlock over the $14.3bn debt ceiling
negotiations, Europe’s sovereign bond crisis, and hints from the Fed that additional policy stimulus may be on the horizon, all fuelled the rally.
2)Energy Inflation: The rapid rise in energy prices over the first half of this year, the fall-out from the Japanese earthquake and tsunami disasters as well as the end of QE2 have dented growth and sparked fears that the US may not be in a soft patch but rather entering a double dip recession.
3) Eurozonde Debt: Investors also focused on problems in the Eurozone, where risks of contagion from the Greek debt crisis also supported investment activity in gold. While disagreement over a Greek bailout plan continued Moody’s downgraded Ireland’s government paper to below investment grade (to junk status, from Ba1 from Baa3).
4)QE 3 possibilities: However, the key catalyst to drive gold over the $1,600-level was news that the Fed was considering further policy easing. The release of minutes from the FOMC’s June meeting revealed that various members were, dependent upon further weakening in the job market, in favour of fresh stimulus so long as inflation remained in check. On 13 July Bernanke in testimony before Congress made a statement long awaited by Gold investors: “On the one hand, the possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might re-emerge, implying a need for additional policy support.
According to Jeff Nichols, the present gold rally " ..is just the beginning of gold's next great leap upward, a move that very likely will carry the metal to $2000 an ounce in 2012 -- with prices still headed higher, quite possibly to $3000, $4000, and maybe even $5000 an ounce by the mid-to-late years of the decade."
" Contrary to the view expressed by most serious gold analysts, we said in past reports that gold would not pause for its typical summer vacation. And, it hasn't! Now, however, seasonal factors will kick in -- giving gold more firepower in the final months of the year," Jeff Nichols said.
India gold demand remains robust despite high prices on weak equities.Gold demand has grown at an average 13-14% annually over the past 10 years and comprises nearly 15% of total global demand. Demand for gold jewelry in India's tier-II and III towns are set to rise on increasing affluene and preference for branded jewelry.
Investor interest in gold received a fresh boost in July, ABN Amro report said. Investment inflows will continue to be supported by ongoing Eurozone debt woes, the weakening US economic backdrop and the potential downgrade of treasuries. However, most crucial will be the situation in housing, the jobs market and asset prices. The Fed’s mandates remain focused upon full employment and stable prices, yet in review of the latter during QE1-QE2, the Fed is clearly willing to tolerate a weaker dollar and higher prices, particularly in commodities. If the jobless rate creeps back towards 10% and home prices slide further, then there remains little doubt that further policy stimulus will be unveiled. News of a third round of QE (or targeting of yields on longer dated treasuries) will prompt a fresh gold rally, ABN Amro Monthly July report said.
.................................................................................................................
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LONDON, July 26 (Reuters) - Gold eased on Tuesday as investors cashed in some gains after the previous session's record high, but the political impasse in the United States over raising the debt ceiling kept prices firmly supported above $1,600 an ounce.
Spot gold edged down 0.2 percent to $1,610.89 by 1109 GMT. It hit a record $1,622.49 on Monday as U.S. President Barack Obama warned that failure to reach an agreement to avert default could cause a deep economic crisis and urged Republican and Democratic leaders to reach a compromise.
" What is different now is the implications it (raising the U.S. debt ceiling) could have on the credit status of the U.S, Fed policy, potential QE3 and how that affects the dollar so there are tail events here that could be quite problematic," said Michael Lewis, head of commodity research at Deutsche Bank.
" Clearly there are substantial tail events to hit the market so the appeal of gold will still be very strong just given the unstable equilibrium that we're in at the moment in terms of debt levels and zero interest rates."
Bullion has gained nearly 7.4 percent in July as politicians in Washington clashed over raising the U.S. debt ceiling beyond $14.3 trillion to avoid a default.
U.S. gold GCv1 was down $1.00 an ounce at $1,611.20.
European shares edged lower on concerns over the lack of a debt deal, while the dollar fell to record lows against the Swiss franc and slid 0.6 percent versus the euro as political wrangling in Washington kept investors on edge.
A weaker dollar would usually support gold, but the relationship between the two has weakened in recent years.
" Overall, we think the environment should remain favourable and positive technical momentum is likely to see gold test new highs in the near-term. The next technical resistance is at$1,630/34," Credit Suisse analysts wrote in a note.
DOWNGRADE WORRIES
The United States edged closer to a default on Tuesday as Republicans and Democrats struggled to reach agreement over plans to raise the debt ceiling, one week before a deadline to act.
Last week Standard & Poor's warned there was a 50-50 chance the U.S. AAA credit rating could be cut within three months.
" The market is clearly very worried about the small, but undeniable risk of a U.S. default and more pressingly, the growing threat of a ratings downgrade," said UBS analyst Edel Tully in a note. " Comments out of Washington overnight highlighted the lack of significant headway in the debt debate."
" While we expect some additions to core gold longs on the back of this, it is more likely that investors who go long here would be inclined to bank profits immediately, rather than run the risk of a pullback on any positive news out of Washington."
South Africa's National Union of Mineworkers (NUM) said on Monday wage talks with the country's big gold miners had broken down and it would give them a 48-hour strike notice on Tuesday.
South Africa was the world's fourth-largest gold producer in 2010, after China, Australia and the United States.
" It's the wage negotiation season, which happens every year," said Credit Agricole analyst Robin Bhar.
" We'll have to wait and see. But if you're holding gold, you're not going to want to sell it against a background of strikes in South Africa, which is the fourth biggest producer."
Spot silver added 0.1 percent to $40.34. It hit $41.05 in the previous session, its highest since May 4 when prices were tumbling from a record $49.51 set on April 28.
Holdings in iShares Silver Trust , the world's biggest silver ETF, rose 42.44 tonnes to 9,891.61 tonnes, their highest since June 10.Spot platinum was down 0.3 percent at $1,780.75 an ounce, while spot palladium was up 0.5 percent at $807.75.
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* Gold consolidates, awaits euro zone summit result and U.S.
debt talks
* Spot gold could fall to $1,565-$1,575 -technicals
* Coming up: U.S. weekly unemployment claims 1230 GMT
By Rujun Shen
SINGAPORE, July 21 (Reuters) - Spot gold hovered around
$1,600 on Thursday, with investors waiting for the outcome of a
euro zone summit on Greece's debt crisis while concerns around
the U.S. debt ceiling talks continued to support sentiment.
European Union leaders will meet later in the day to seek a
convincing solution to Greece's debt crisis. Failure to reach
agreement could cause economic damage to the global economy, the
head of the European Commission warned.
The gold market is likely to wait for direction as investors
watch for the outcome of the meeting, as well as progress in the
U.S. deficit talks.
" A positive resolution to either the Greek debt problem or a
deal by U.S. lawmakers, or both, will likely undermine gold,
targeting $1,550 and $1,500 in the short term," said a
Singapore-based trader.
" A failure will push gold back into overdrive with upside
technical targets around $1,640-$1,650 and then $1,700."
Spot gold was nearly flat at $1,601.09 an ounce by
0601 GMT, after rising nearly 0.8 percent in the previous
session. Gold hit a record of $1,609.51 on July 19.
U.S. gold GCcv1 gained 0.3 percent to $1,601.80.
Technical analysis suggested that gold could fall to the
range of $1,565 and $1,575 in the short term, said Reuters
market analyst Wang Tao.
Although short-term risk could weigh on prices, gold's
outlook remains bullish in the longer term, as the euro zone
debt crisis is unlikely to end soon and the United States still
has plenty to tackle even if a short-term debt agreement is
reached.
" Even if they have a short-term deal, they still have so
many things to do before a long-term agreement," said Ronald
Leung, a physical dealer at Lee Cheong Gold Dealers in Hong
Kong.
" People are looking at $1,610 as the next target, after gold
finishes this round of consolidation and resumes the uptrend."
Spot silver inched down 0.1 percent to $40.04 an
ounce, hovering below a 2-1/2 month high of $40.84 hit on July
19.
The gold-silver ratio, used to measure the ounces of silver
needed to buy one ounce of gold, stood at 40, well below the
average of 55 since the beginning of 2010 but above the April
lows near 30 when silver rose close to $50.
.................................................................................................................
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Gold eases from record highs, eyes euro summit
* Gold retraces after hitting record early in Europe
* Euro, stocks, oil rebound after Monday's losses
* All eyes on U.S. debt crisis, European summit
By Jan Harvey
LONDON July 19 (Reuters) - Gold prices eased a touch on Tuesday after earlier hitting record highs, as a rebound in assets seen as higher risk, such as shares and the euro, took some of the heat out of the appetite for safe havens.
Gold prices remained elevated, however, as investors continued to favour the metal amid heightened concerns that the debt crisis engulfing Greece may ensnare Italy and Spain, and as time grew short for raising the U.S. debt ceiling.
Spot gold hit a peak of $1,609.51 an ounce and edged down 0.1 percent to $1,601.89 an ounce at 1322 GMT. It is up 13 percent so far this year, supported by concerns over the euro zone debt crisis and the potential for further U.S. quantitative easing.
" All depends on what happens in the euro zone... and QE3," said Andrey Kryuchenkov, an analyst at VTB Capital. " (We) don't expect it, but some are pricing it in. Should risk aversion escalate, (gold) will go higher."
The euro rose broadly on Tuesday as debt yields of some weaker euro zone countries retreated, taking a breather after sliding to record lows against the Swiss franc -- which is commonly seen as a safe store of value -- on Monday.
German government bond prices fell as lower-rated euro zone debt stabilised slightly, prompting investors to book profits in Bunds after their rally to near 8-month highs, while European shares rose after a sharp fall in the previous session.
But jitters remained in the financial markets given divisions among policymakers ahead of Thursday's euro zone summit, with few expecting a permanent solution to the region's debt crisis.
U.S. President Barack Obama and top lawmakers are also facing more pressure for a debt dealamid a growing sense that a last-ditch plan taking shape in Congress may be the only way to avoid a devastating U.S. default.
" Although the challenges facing the EU and U.S. are different, they share some common themes in that they are both based on sovereign debt issues and are seen as being political as well as economic in nature," said HSBC in a note.
" Taken together, the combined effect on gold prices is... bullish, as investors wary of dollar and euro assets, seek a safe alternative. Based on this, we believe at least one of these dilemmas has to be resolved or at the least some tangible progress made on a solution before gold is likely to retrace."
FUNDS SEEK PROTECTION
Investors are hoarding gold and cash as a perfect storm brews in equity and credit markets, with data published by EPFR Global, which tracks flows in and out of funds, showing a thirst for gold helped drive the biggest inflows into commodities funds for 14 weeks in the week to July 15.
Holdings of precious metals-backed exchange-traded funds rose on Monday, with the amount of gold held by the largest gold ETF, New York's SPDR Gold Trust rising by 13.3 tonnes after a 10-tonne inflow the previous day.
" Exchange-traded funds in the last five sessions have gained just over 50 tonnes (of gold), so there is clearly money coming back in," said Simon Weeks, head of precious metals at the Bank of Nova Scotia.
" It's not going to be one-way traffic, but the fundamental issues and concerns haven't gone away.... and people have realised that gold is important as a currency."
The largest silver-backed ETF, the iShares Silver Trust said its holdings rose 39.4 tonnes on Monday.
The gold:silver ratio -- the amount of silver needed to buy an ounce of gold -- dipped under 40 this week for the first time since early May as silver outperformed gold in a rising market, a common phenomenon given its lower liquidity.
" Silver is clearly benefiting from its greater affordability, attracting investors who are keen on hard assets during these uncertain times," said UBS in a note. " (Its ratio to gold) looks poised to fall further in the near term, particularly if risk aversion continues to dominate."
Silver was bid at $40.24 an ounce against $40.51. Spot platinum was bid at $1,770.24 an ounce versus $1,769.98, while spot palladium was at $790.97 an ounce against $792.57. (Editing byJames Jukwey)
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I heard that the United States risks losing its triple-A credit rating if it does not boost the debt ceiling and defaults on national responsibilities. Even the average Joe will feel the pinch if the credit rating suffers for sure. Now the residents might not even have the opportunity to use
personal loans ever again if this ripple happens.
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