After Greek Vote, Equities Recover as Gold Prices Dip

No 741831On Monday, gold fell roughly 1 percent and had traders cashing in on last week’s gains from the precious metal’s five-month high. This was also just after the snap election on Jan. 25th, where the wider markets based their buying decisions on the Greek anti-austerity party taking office.

Alexis Tsipras and his Syriza party swept the victory on Sunday. The Greek leftist is set to become prime minister of the first Eurozone government outwardly opposed to the bailout conditions given by the EU and International Monetary Fund during the economic crisis. And though Greek stocks fell after news was released of the election, the broader European share market was much steadier.

The focus rests on the bond-buying plan set by the European Central Bank (ECB) last week, and its potentially positive effects. The market saw spot gold drop 1 percent off an early low of $1,275.75 to $1,280.80. U.S. gold futures for February delivery also settled by 1 percent to $1,279.40. Last week’s rise for gold was its best since mid-August, but left the precious metal exposed and vulnerable. “With the event risk out of the way, now that everyone knows what’s going on in Greece, sentiment has calmed somewhat,” says Georgette Boele, and analyst for ABN Amro. “The recovery in sentiment is hurting gold prices somewhat.”

The newly elected Greek prime minister’s pledge to confront global lenders should have ruffled some tail feathers. But the euro and European shares and bonds seemed unaffected, a clear sign of confidence regarding the abilities of the ECB’s new money printing program. The currency rebounded after the election, but not before reaching an 11-year low against the dollar. “We are now seeing profit-taking in the wake of the expected victory of the radical left-wing Syriza party in the Greek parliamentary elections,” said Commerzbank in a recent statement. “Now that the ECB’s bond purchases and the new Greek government, which had buoyed gold prices, have been announced, investors have followed “the old adage of ‘buy the rumor, sell the fact.'”

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Silver Havens Spike From Slow Growth

SilverUSGOVSilver is having its best start to a year in over three decades and is headed for a bull market. Experts agree that much of this early success for the precious metal is due in large part to the decrease in global economic growth. Because of this slowed growth, silver havens are in high demand and continue to gain more momentum.

Data from the U.S. government has money managers raising their net bullish wagers to last year’s August highs. And with holdings in exchange-traded products backed by silver posting three straight weeks of gains, an ounce of gold is buying 71.4 ounces of silver. This is a fair signal of a drop in value for the white metal after a decade’s average of about 58 ounces.

Gold prices dropped to $1,300 an ounce, marking the lowest drop since August of 2014. It seems the mixture of collapsing oil prices and growing concerns about the U.S. growth’s ability to offset the global slide has investors returning to precious metals. Stimulus plans are scheduled to be released on Jan. 22 by policy makers at the European Central Bank.

“Silver will benefit from all the stimulus measures and rate cuts being announced aggressively by the central banks,” said Caroline Bain, a commodities economist at Capital Economics Ltd. in London. “The stimulus measures will at some point boost usage of the metal.” Bain also expects silver to reach $20 by the year’s end.

On Wednesday, silver for immediate delivery rose to 0.7 percent, and closed at $18.127. Settling at $18.4064 would have the white metal up 20 percent from last November’s $15.3387, and ultimately hitting bull market standards. With January prices up 15 percent, silver is having its best start since 1983.

“Silver is rising along with gold as a hedge against uncertainties,” said George Gero, a New York-based precious-metal strategist at RBC Capital Markets LLC. “Also, some funds are betting on future growth with so much money being pumped into the system.” Experts are forecasting a growth in consumption to roughly 680 million ounces by 2018, which is 140 million ounces above 2013 marks.

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China to Avoid “Hard Landing,” But Expects Lower Growth

P1-AO494_CANGER_DV_20090128185917At the 45th Annual World Economic Forum in Davos, Switzerland, it was announced in a keynote speech by the Premier of the People’s Republic of China, Li Keqiang, China will be able to sustain slower economic growth without having to suffer from a “hard landing.”

The announcement was made just a few days after Chinese government officials reported the expansion of their gross domestic product by 7.4% in 2014. China set a goal earlier in the year for gross domestic growth that was missed by only 0.1%. That being the case, China is now experiencing their slowest economic growth in over 24 years.

“The Chinese economy will face downward pressures in 2015,” Li said, “but the Chinese economy will not head for a hard landing.” Li went on to mention that the cause of this decrease in growth could be a side effect of the global economy’s current status. However, he expects China to still play a substantial part as the global marketplace looks to rebound. A 7% growth rate is able to produce $800 billion in annual increases, which remains higher than the recorded growth rate from five years past.

Li reported that China, even with the weakened rate of growth, has no plans on implementing any new stimulus plans, but will instead support growth through structural reforms. “We will move towards the path of reforms. This way we can shift gears without losing momentum and achieve medium- to high-speed growth, and medium- to high-level developments,” said Li.

Li concluded his speech by saying that the Chinese government will be preparing the nation to “embrace the new normal” of a non-export led economy by shifting to a more consumer-based model. Targeted investments for healthcare, clean energy, and small- and medium-sized businesses backings will better support job growth, especially for younger generations.

Economist Nouriel Roubini, who attended the conference, was quoted in a recent interview saying he expects Chinese growth rates to reach lows of 6% next year. But Li’s statements make it clear that China is refocusing its efforts on domestic growth. As more and more countries are demanding Chinese currencies to settle trades and investments, it seems the course for Chinese growth is set. Though they are committed to the creation of internationalized currency, China is okay with that being a long-term process for the time being.

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