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« JPM Sees Gold At $2,500 By Year End | Main | Compromise, D.C.-Style »

$1700.00 Gold as Markets shaky on US downgrade and the ECB’s intention to buy bonds

gold at 1700 08 aug 2011.JPG

Expect a rather volatile week as investors digest the effects of the the dollar downgrade and The European Central Bank's intention to go on a bond buying spree.

It will be interesting to observe just where investors go to seek protection and safety, the USD or the precious metals space?

As we write gold prices are standing at $1698.30/oz and silver prices are standing at $40.23/oz with dollar down a tad. However, we may get some big number wobbles as gold approaches $1700.00/oz, nothing technical, more a psychological barrier to it making further progress, but don’t count on it as gold is very strong at the moment.

This is an excerpt that was posted on Business Week earlier today regarding the ECB:

The European Central Bank says it will "actively implement" a bond-purchase program that could boost Spanish and Italian bonds and drive down interest yields that threaten those countries with financial disaster.

Sunday's statement from bank President Jean-Claude Trichet comes as global finance officials discussed ways to ward off more turmoil ahead of the opening of financial markets on Monday, the first substantial trading after the U.S. lost its triple-A bond rating from Standard & Poor's on Friday.

Officials from the Group of 20 rich and developing countries also held talks aimed at minimizing market shocks. G-7 officials were reportedly to confer before markets open in Asia as well.

The G-7 includes Britain, Canada, France, Germany, Italy, the U.S. and Japan, while the G-20 includes those countries and large emerging economies Brazil, Russia, India and China.

The burst of activity on a Sunday in August underscored how government debt levels in Europe and the U.S. have unsettled financial markets -- and sharpened fears that debt troubles could derail the global recovery from the 2007-2009 financial crisis.

The statement from the ECB, issued after a conference call among its officials, did not say which countries' bonds it would buy or the amounts.

But the beneficiaries are expected to be Italy and Spain, market analysts say. Italy and Spain are trying to avoid the spiraling interest rates that forced Greece, Ireland and Portugal to seek bailout loans. Purchases could drive up bond prices, which move in the opposite directions from interest yields.

Last week, yields for both countries were above 6 percent, moving toward the levels that upended the three smaller countries. Italy in particular is regarded as too large for Europe's euro440 billion bailout fund to rescue, raising the possibility of a financial disaster that could devastate the eurozone economy.

Analysts at Royal Bank of Scotland said recent moves by Italy to strengthen its finances helped bring the ECB to its decision. The bank was reluctant to come to the rescue unless governments first close the holes in their finances.

The bank statement Sunday said it was "essential" for them to follow through on their commitments.

Italian Premier Silvio Berlusconi said last week that Italy would balance its budget in 2013, a year earlier than previously expected, and speed up other budget measures.

"The ECB will start a large scale bond buying of Italian and Spanish sovereign bonds on Monday morning in our view as euro area governments have signed up to additional fiscal measures where needed," the analysts from RBs said.

They said the purchases could run euro2.5 billion ($3.5 billion) a day and reach euro600 billion if continued for a year -- but "will stop the collapse of the bond market in countries under stress."

Over on King World News, Peter Schiff reckons that Buffet was wrong:

When asked about gold Schiff stated,

 “The dollar used to be the safe haven, Treasuries used to be the safe haven, well if you are downgrading US Treasuries, obviously they are not the safe haven anymore.

For those people who believed foolishly that Treasuries were the safe haven, S&P is finally saying they’re not.  In fact they (Treasuries) are on negative watch for a reason, I think S&P is going to downgrade then I’m sure Moody’s and Fitch will have also downgraded US Treasuries.”

When asked about Warren Buffett’s comments where he said S&P made a mistake by downgrading US debt Schiff responded as follows:

“Well he owns a big chunk of Moody’s doesn’t he? Moody’s hasn’t lowered their rating, so somebody is mistaken, it’s either Moody’s or S&P. It stands to reason that Buffett would say his competitor was mistaken rather than himself.

So there you have it, go gently out there and as always, expect a white knuckle ride!

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sk chart 22 May 2011.JPG

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So, the question is: Are you going to make the decision to join us today.

Stay on your toes and have a good one.

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