As we approach the first US trading day in September 2012 after the labor day weekend, gold and silver are pushing back up in to higher territory.
Anticipation has been the fuel behind the recent uptick in metals, and the tank is far from empty. China has just added some rocket fuel as manufacturing numbers from Asia’s powerhouse has them at a three year low, and investors chomping at the bit in expectation of some type of stimulatory action out of the red state. China is a triple threat right now, with three tools to choose from
- Lower interest rates
- Lower bank reserve requirements
- Increase spending
China was growing so fast for so long, they are well equipped to handle this slowdown to their benefit. Markets will have China’s actions brightly lit on thier radars in the following days and weeks, you should as well.
Mario Draghi, head of the European Central Bank (ECB) has yet to deliver on his promise of “whatever it takes” to keep the Eurozone above water. His lack of action may have cost them their already tarnished credit rating to be cut to negative by Moody’s over the labor day weekend. Dialogue released from Draghi’s most recent meeting this weekend has him conversating about buying short term bonds of Italy and Spain to ease the increasing costs of borrowing for these two potential anchor weights to the Eurozone. As some analysts have blindly said this is a good sign, and a message of “get your house right after three years”, it seems that this may be the only thing Draghi can do. Buying in to the long end of the yield curve is against the rules of a mechanism that has yet to be ratified and given authority as of yet. (referring to the ESM)
As Thursday approaches and many anticipate details on Draghi’s bond buying plan, they could be setting themselves up for another round of dissapointment. Draghi may have spoken to soon as Europes “catch all” system is in dissarray. We can’t seem to get a grip on what rules are in place right now, the EFSF(European Financial Stability Facility), EFSM(European Financial Stability Mechanism) or the ESM(European Stability Mechanism). The first two, EFSF and EFSM are set to expire next year, with the ESM expected to replace both from what we understand.
The European Stability Mechanism (ESM), is awaiting a verdict from Germany and Angela Merkel on whether or not this treaty to support financial markets in times of turmoil is constitutional or not. The Europeans will be releasing a preliminary decision on September 12th concerning the legalese and or constitutionality of the ESM as a whole, which in turn will determine the extent of Draghi’s ability to go forward with his bond buying plan to prop up Eurozone members economies.
The 12th of September just so happens to be the day that Bernanke and clan enter their enclave to start a 48 hour pow wow which will be followed with a nationally broadcasted press conference upon conclusion.
Check up on those circuit breakers Wall St., September will be a wild ride! The algoritmic HFT’s (high frequency traders) don’t need rest, and they are being re written as I type gearing up for not this weeks data, but next Wednesdays reaction.
Ludwig Van would be impressed with the conducting of the worlds financial orchestra right now. As the biege book justified the lack of action from Bernanke last week, this Friday’s non-farm payrolls number just may be what he uses to justify the direction taken during the September 12th Fed meeting.
Good luck this week!
Technicals combined with the political smoke screens and mirrors have precious metals in a good place right now!