Precious metals and the U.S. dollar are rising this morning as shorts are covered and investors start looking for a safe haven due to tumultuous conditions in the EU economic sphere. Ousted ex-Prime Minister Berlusconi of Italy is making a bid to return to power, pulling his party’s support for the current government and forcing present Prime Minister Mario Monti to tender his resignation. Monti’s government was widely seen as responsible for Italy’s improving situation, and Berlusconi is pushing an anti-Germany, anti-austerity message. Italian bonds jumped 36 basis points, and Spanish bond yields also rose, sending the euro lower.
It’s bad news/good news in Asia, as Japan is officially in a new recession, having reported a second consecutive quarter of contraction with a third expected, and China announced industrial output was up 10%. China’s central planners indicate that they are more worried about inflation than nursing economic expansion.
In the U.S., Wall St. is beginning to discount the empty PR-speak coming out of Washington over the fiscal cliff. However, the FOMC is in the center ring of the economic circus this week as all eyes turn to their meetings, which start tomorrow and last through Wednesday. The question seems to be not whether there will be QE4, but only how far it will go. There seems to be no thought of holding off on further money printing, even though the unemployment rate was last reported under the 8% threshold at 7.7%. Standard Bank expects gold to see a bumpy ride while gaining slightly, until the details of the new round of quantitative easing are known.
Looking back at last week, Morgan Stanley says the decline in precious metals was due to the liquidation of long positions. “There is sufficient evidence to suggest the downward pressure is coming from hedge-fund redemption and year-end book squaring” they report. Morgan Stanley keeps their prediction of gold prices averaging $1,853/oz for 2013. Barclays notes that another 6.2 metric tons of gold was purchased by gold ETFs last week, bringing the year-to-date increases to 268 tons.
The usual COMEX morning “head shot” on precious metals hasn’t materialized today, leaving 10AM spot prices at 1713/oz for gold and $33.31/oz for silver, trading slightly off their morning highs.