Greek Bond Yields Surge
Gold prices opened this week steady - holding above $1,500 per ounce - despite turbulence in global financial markets. Worries over an imminent restructuring of Greek government debt has pressured Europe's common currency and helped drive investment flows into gold. The yield on Greece's ten-year bond spiked to a new record high of 16.5% late last week after Fitch Ratings downgraded Greece's senior debt by three notches to B-plus, a rating on par with Venezuela.
The negative impact on European banks that would result from a haircut on Greek debt - as well as concerns that Spain and Italy could be next in line for a bailout - helped quell risk appetites across the globe. The euro has dropped nearly 5% this month against the U.S. dollar while emerging market stocks head into this week having declined four straight weeks.
Gold Stocks Set to Rally?
Gold has benefitted from its safe haven status and is being increasingly viewed as a currency alternative. At $1,512 per ounce, the price of gold has gained 6.4% thus far in 2011. However, the share prices of gold mining producers and explorers continue to lag the metal. They have faced heavy selling pressure this month with the Market Vectors Gold Miners ETF (GDX) sinking 10.4% in May - leaving it off 9.3% this year despite the rally in gold prices. An article in this past weekend's edition of Barron's suggests that this underperformance is due to end. "A disappointing multiyear period for the major gold mining stocks - Newmont Mining, Barrick Gold, and Goldcorp - could be ending, thanks to rising profits, higher dividends, and strong gold production," noted veteran author Andrew Bary.
Silver Stabilizes
From its high print of $49.79 per ounce on April 25 to its recent low of $32.31 on May 12, gold's sister precious metal, silver, crashed 35.1%. On the back on multiple increases in margin requirements on the COMEX, net long positions in silver positions were liquidated, as were massive bullish positions in silver exchange traded funds, notably the iShares Silver Trust (SLV). Evidence of the exuberance in the silver market was on full display when the SLV in late April and early May racked up higher daily volumes than the largest and most liquid ETF in the world, the SPDR S&P 500 Trust (SPY).
After hitting its lowest level since 1983, the gold-silver ratio has inched higher on the back of silver's drop. According to Wall Street analysts, if the recent spike in risk aversion becomes more intense, the gold-silver ratio will likely continue to move higher. Silver may need to consolidate near current levels before resuming its bull trend. If stock and commodity prices continue to be under pressure, silver may face a headwind in coming weeks. Strong support comes in at the 200-day moving average at $29.74 per ounce.
Pressure on Bernanke Eases
Investors and traders will be keeping a close eye on commodity prices, which after a blistering run higher have cooled off in recent weeks. Industrial metals have fallen 11% from their recent peak while agricultural commodities sit nearly 10% off their spring highs. Lumber futures have plunged over 30% in 2011, a sign that the stagnant housing market could be due for additional weakness as the year progresses.
The recent move lower in oil and the bulk of the commodity complex has eased pressure on Federal Reserve Chairman Ben Bernanke and his colleagues to tighten monetary policy. Despite the recent correction in the gold price off its $1,578 all-time high, the secular bull market in gold shows few signs of ending. Sovereign debt issues in Europe, in the United States, and in Japan will likely persist for many years.
Despite the rise in hawkish deficit rhetoric, politicians have taken no meaningful actions to address the serious long-term structural problems facing the developed world. Currency degradation, caused by negative real interest rates and monetary inflation, has compelled several global central banks and large institutional investors to turn to gold as an alternative to currency reserves. According to the World Gold Council, central banks purchased more gold in the first quarter of 2011 than they did in the entire year of 2010.
Bullish sentiment toward gold has waned in recent weeks and while more consolidation near the $1,500 level may in order, surprises will likely continue to be on the upside.
Gold prices opened this week steady - holding above $1,500 per ounce - despite turbulence in global financial markets. Worries over an imminent restructuring of Greek government debt has pressured Europe's common currency and helped drive investment flows into gold. The yield on Greece's ten-year bond spiked to a new record high of 16.5% late last week after Fitch Ratings downgraded Greece's senior debt by three notches to B-plus, a rating on par with Venezuela.
The negative impact on European banks that would result from a haircut on Greek debt - as well as concerns that Spain and Italy could be next in line for a bailout - helped quell risk appetites across the globe. The euro has dropped nearly 5% this month against the U.S. dollar while emerging market stocks head into this week having declined four straight weeks.
Gold Stocks Set to Rally?
Gold has benefitted from its safe haven status and is being increasingly viewed as a currency alternative. At $1,512 per ounce, the price of gold has gained 6.4% thus far in 2011. However, the share prices of gold mining producers and explorers continue to lag the metal. They have faced heavy selling pressure this month with the Market Vectors Gold Miners ETF (GDX) sinking 10.4% in May - leaving it off 9.3% this year despite the rally in gold prices. An article in this past weekend's edition of Barron's suggests that this underperformance is due to end. "A disappointing multiyear period for the major gold mining stocks - Newmont Mining, Barrick Gold, and Goldcorp - could be ending, thanks to rising profits, higher dividends, and strong gold production," noted veteran author Andrew Bary.
Silver Stabilizes
From its high print of $49.79 per ounce on April 25 to its recent low of $32.31 on May 12, gold's sister precious metal, silver, crashed 35.1%. On the back on multiple increases in margin requirements on the COMEX, net long positions in silver positions were liquidated, as were massive bullish positions in silver exchange traded funds, notably the iShares Silver Trust (SLV). Evidence of the exuberance in the silver market was on full display when the SLV in late April and early May racked up higher daily volumes than the largest and most liquid ETF in the world, the SPDR S&P 500 Trust (SPY).
After hitting its lowest level since 1983, the gold-silver ratio has inched higher on the back of silver's drop. According to Wall Street analysts, if the recent spike in risk aversion becomes more intense, the gold-silver ratio will likely continue to move higher. Silver may need to consolidate near current levels before resuming its bull trend. If stock and commodity prices continue to be under pressure, silver may face a headwind in coming weeks. Strong support comes in at the 200-day moving average at $29.74 per ounce.
Pressure on Bernanke Eases
Investors and traders will be keeping a close eye on commodity prices, which after a blistering run higher have cooled off in recent weeks. Industrial metals have fallen 11% from their recent peak while agricultural commodities sit nearly 10% off their spring highs. Lumber futures have plunged over 30% in 2011, a sign that the stagnant housing market could be due for additional weakness as the year progresses.
The recent move lower in oil and the bulk of the commodity complex has eased pressure on Federal Reserve Chairman Ben Bernanke and his colleagues to tighten monetary policy. Despite the recent correction in the gold price off its $1,578 all-time high, the secular bull market in gold shows few signs of ending. Sovereign debt issues in Europe, in the United States, and in Japan will likely persist for many years.
Despite the rise in hawkish deficit rhetoric, politicians have taken no meaningful actions to address the serious long-term structural problems facing the developed world. Currency degradation, caused by negative real interest rates and monetary inflation, has compelled several global central banks and large institutional investors to turn to gold as an alternative to currency reserves. According to the World Gold Council, central banks purchased more gold in the first quarter of 2011 than they did in the entire year of 2010.
Bullish sentiment toward gold has waned in recent weeks and while more consolidation near the $1,500 level may in order, surprises will likely continue to be on the upside.
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