Gold Prices shot up sharply after 3 days of continued uncertainty as the Cyprus crisis has put a little bit of a spin back towards safe- haven assets. Gold Prices climbed to a two-and-a-half week high above $1,600 an ounce as outrage in Cyprus over an unprecedented levy on bank deposits threatened to derail the nation’s bailout and spark a new round in the ongoing Eurozone Debt Crisis, boosting demand for haven assets. The controversial bailout plan for Cyprus threatens renewed uncertainty in the Eurozone. Comex Gold for April delivery rose as much as 0.9% to $1,607.60 & Silver for immediate delivery climbed as much as 1.3% to $29.135 an ounce. Cypriot President Nicos Anastasiades bowed to demands by Eurozone finance ministers to raise 5.8 billion euros ($7.5 billion) by taking a piece of every bank account in Cyprus. He said Sunday that a controversial bank levy on private depositors in Cyprus banks as part of an EU bailout deal was the “least painful” option for the recession-hit island. “I chose the least painful option, and I bear the political cost for this, in order to limit as much as possible the consequences for the economy and for our fellow Cypriots,” Anastasiades said. Scenes of Cypriots lining up at cash machines raised the specter of capital flight elsewhere and threatened to disrupt a market calm that settled over the 17-member bloc since the European Central Bank’s pledge in September to backstop troubled nations’ debt, reported Bloomberg. Gold Prices have shot up purely as a result of a little bit of nervousness coming back into the Eurozone & need to close above the crucial $1606 levels for further sustained upside momentum. This rise yet does not mark a confirmed turning point for Gold and Silver Prices which have seen a lot of hammering in the recent months. The outlook on Gold Investment will really not change much until US Economy does not start showing cracks & the irrational exuberance in the markets does not show signs of weakening. If that happens & also If Gold Prices manage to close above $1606, then could ride the wave towards its first major resistance around $1675 also. If not, then could tumble down again. Eyebrows were raised in the Gold Market this week when a story in the Wall Street Journal said that the U.S. CFTC – Commodity Futures Trading Commission may look into the operations of London Gold and Silver fixings. However, statements from two commissioners also suggest that the CFTC, which is the regulator for the U.S. derivatives market, may be planning to look at the key benchmarks for a range of markets and not necessarily just singling out Gold and Silver.
The Russian stand:
Cyprus is a tax haven and with lax compliance laws has become an ideal place to carry out money laundering. Experts estimate that Russian deposits in Cypriot banks amount to at least $20 billion, leading to allegation that the island had become a haven for money launderers—accusations Nicosia vehemently denies. “Confidence in Cyprus as a safe place to deposit money is going to be reduced to zero,” Anatoly Aksakov of the Russian association of regional banks told Interfax news agency. “Russians have lost up to €3.5 billion in one day,” an editorial on the website of the Russian edition of Forbes magazine read. “The news of a 10% tax on deposits in Cypriot banks has sown panic among the richest Russian businessmen.” Despite the public statements of opposition, many Cypriots said they expected MPs would eventually be forced to approve the deal.
Gold Prices up on a knee jerk reaction on Cyprus Bailout Disaster:
Eurozone finance ministers want Cypriots with deposits of over 100,000 euros ($128,950) to fork out 9.9% of their savings while those with less than a hundred thousand euros will be hit with a 6.75% levy in order to raise 5.8 billion euros, so that the country is eligible for an international bailout. Investors are concerned that taxing depositors will set a dangerous precedent for the Eurozone and ultimately risk runs on regional banks. Over the weekend, analysts warned the decision by the Eurozone to force bank depositors in Cyprus to contribute towards a bailout—a first in the Eurozone Debt Crisis—could hurt other peripheral nations, the euro and the global stock market rally. That warning appeared to be coming true as the euro tumbled on Monday, falling below $1.29 in Asia trade to its lowest level this year. Risk assets, including Asian equity markets, took a sizable hit. Asian equity markets are also deeply in the red as jitters over the Cyprus bailout dealt risk appetite a blow, but provided the much sought after price rally for Gold. The structure of the bailout shocked many, including Sharon Bowles, chair of the European parliament’s economic and monetary affairs committee, who called it a “disaster” for European Union rules and the single market.
Inflation will be main trigger for Gold and Silver later:
Gold and Silver Prices will gather strength to move higher later when higher inflation kicks in. Talk about inflation increased on Friday after the February consumer price index data came in higher than expected. The overall figure was up 0.7% in February, the highest since June 2009. The main figure was led by a surge in gasoline prices, up 9.1%. It will also take a hefty break in stock markets to shake up investors enough to return to Gold investment in a big way and its safe haven allure again. The main event for week is the Fed’s March Federal Open Market Committee –FOMC meeting, set for Wednesday. This meeting will feature a press conference from Chairman Ben Bernanke and market participants will look for more forward guidance on Fed policy, particularly after stronger-than-expected housing and jobs data.
Every time the US prints GDP growth numbers, it adjusts this data for inflation. The reason for this is that if the economy grows at 10%, but prices also rise at 10%, then there really hasn’t been any actual growth. To deal with this, the US adjusts its GDP measures for inflation to make it appear as f they’re objective. The only problem is that the US adjusts GDP using a phony inflation number that is much lower than reality. A great example is last quarter when we were told that the GDP grew at an annual rate of 0.1%. The reality is that if you used realistic inflationary measures, the US Economy SHRANK at a rate of over -1% last quarter. Yes, negative 1% – The worst GDP print since 2009 says Graham Summers. For decades now we’ve been told that we were getting wealthier because incomes were growing and asset prices like stocks and real estate were rising.
The US Dollar has lost over 20% of its value in the last few years & yet there is show of growth – How? All know we have been paying much more for everything & that spending has been the source for much of this Stock market Growth which are now at all time Highs. What is this increased spending? Inflation! That is the source for most of this Growth. People are told they are richer as incomes are up. No- Your employer is spending more & you in turn are paying up more for other services or products. And yet the Government & the Fed say there is no Inflation? If there is no Inflation, there has been no Growth too.
Look around you. The cost of everything is increasing dramatically. Gas prices are UP. Home prices are UP. Healthcare costs are UP. Energy prices area UP. Everything you need to survive is UP. Forget the Fed’s CPI measure. Inflation is here now. And things are only going to be getting worse going forward. History has shown us countless times that you cannot print money without prices soaring. There is not one single instance in which currency devaluation has not done this. And the US Federal Reserve is now printing $84 billion every single month. What effect do you think this will have on the cost of everything? Yes, everything will be going up even MORE. Make no mistake, now is the time to be preparing yourself and your portfolio for this. Inflation can take its time to arrive. But once it does… things move very quickly.