Investors Dump Stocks In Favour Of A Safe Haven
With a hangover from Friday’s poor US job figures being compounded by the head banging news of Europe’s final submission to Greece’s impending bankruptcy, stock markets suffered something of a migraine on Monday.
Whilst most analysts have been convinced for some time that Greece would be unable to carry out its austerity plans and secure a second and third round of funding from the ECB, Europe’s finance ministers have been arguing the opposite. Over the weekend, they seem to have caved in to reality and it now looks likely that Greece will have to declare itself bankrupt and place itself firmly in the hands of the IMF.
The question that will soon be voiced more loudly is who will be next? The whole point of the European Central Bankers supporting Greece was to stave off a stampede of money coming out of Europe, and the Euro. Greece needed to remain standing, all be it with a colossal amount of scaffolding, for the financial woes of other European countries to remain out of the spotlight. Once one domino falls, it triggers ‘the topple’. And that is the real worry.
Greece, Ireland, and Portugal have received European bail-outs of late. Now they all look under increasing threat from continued financial misfortune. And European Finance ministers have at last signalled their unwillingness, possibly even inability, to prop up other EU member states. With not just the aforementioned countries, but also Belgium, Italy, Spain, and even the UK, running huge budget deficits and introducing unpopular austerity measures themselves, this story has not yet run its course. Equity investors be warned.
As stocks were sold aggressively around the world, with most major markets turning south from key levels of resistance, bullion investors turned their eye to the defensive qualities of gold and the dollar.
Gold had a good day, turning positive from the outset and only giving away gains midday before heading upwards again. The more industrial precious, silver, posted falls. This was, in fact, a strong performance from silver in the face of the now real potential for industrial weakness across Europe. Though down 2.5% on the day, silver is looking increasingly like a bull market, as the recent buying at support levels has given fresh impetus. It mustn’t be forgotten, either, that Silver out performed all others last week with an 8.6% rise. Today’s pull back smacks of an excuse for profit taking, whilst at the same time presenting the opportunity to buy on dips.
The dollar saw support, too, bouncing from recent basket lows and recovering against Sterling and the Euro as forex dealers shunned the Eurozone.
With financial woes causing some consternation over the ability of Europe to recover from recession, and a possible double dip now in the frame, oil fell away too, ending with a loss of around 2.5% on the day.
Looking ahead to the rest of the week
All eyes will be on the reporting season beginning in the USA, and key economic data due from Europe and the USA.
The reporting season in America could prove key to the direction of the markets in the medium term. With lowered forecasts from analysts, it should be hoped that most are beaten. If they are not, then stock markets both sides of the Atlantic could take a further tumble.
Add to this the raft of economic numbers coming out this week, and it is definitely a period for caution in equities. On Tuesday, we have the Trade Balance numbers form the UK and the US, as well as UK CPI and RPI numbers. Poor trade balances could push the market lower, whilst an overshoot of inflation forecasts in the UK would give the hawks on the Monetary Policy Committee further case in their argument to hoist interest rates. Such a move, or anticipation of one, would further dampen economic growth in an already perilous market.
Further out, the US announces its own inflation numbers on Thursday. Whilst inflationary pressures seem more subdued in the USA, an overshoot will be viewed in a similar vein to those released in the UK earlier in the week. US initial jobless numbers are notoriously volatile, but at 410k the estimate seems a little low, given the poor jobs numbers reported last week.
Industrial production figures fall due from Europe on Wednesday, and from the USA on Friday. Market bulls will be hoping that these do not disappoint.
Finally, on Thursday, the ECB presents its monthly report, along with European inflation numbers. Having raised interest rates last week, the feeling is that the inflation numbers will come in on the high side, but the real focus on that day will be on what the ECB has to say in the light of the apparent u-turn on Greece’s financial woes.
Good News for Silver
All these debt and company results fears should continue to underpin the recent rises in the safe havens of gold, silver, and the dollar.
Although silver is seen as an industrial metal, its meteoric rise over the past year or so is justified on several grounds. Not only has it been in more demand as the tiger economies seek to take stock, but also with the better global economic outlook – particularly from China and India – there is pent up demand for silver.
Whilst no asset ever trades in a straight line, up or down, the price weakness today could be viewed as a buying opportunity for the medium to long term investor. There is a major support level in silver at around 35.10, which could see the price bounce. At this level, the price will have seen a 50% retrenchment from its recent highs and be approaching a technically oversold position.
United States Mint Releases American Eagle Sales Figures
The Mint posted record sales figures for its 2011 American Silver Eagle Bullion Coins in June. Total sales, at 3,402,000, ranked as the best ever June, and 7th best month on record. However, this figure was a slight drop on May’s sales.
To help increase future supplies, the Mint began fulfilling bullion orders with San Francisco minted Eagles on May 31, in addition to coins produced at West Point. If sales continue through the rest of the year at the current rate, total sales would be around 44.6 million, compared to last year’s annual record of 34,662.500.
Impetus for sales of the American Silver Eagle Bullion Coin has come from the direction of the precious metals market, with 31-year highs seen during April. Though since then the market has fallen back to trade in the $30 to $40 range, these dips have been viewed as providing buying opportunities for investors, hence the surge in sales.
