Daily Market Update

Gold Gains as Credit Rating Agencies Flag an “Italian Job”

Gold is trading at USD 1,793.84, EUR 1,309.37, GBP 1,140.96, JPY 137,101.40, AUD 1,742.44 and CHF 1,577.91 per ounce. 

Gold’s London AM fix this morning was USD 1,792, EUR 1,309.37, and GBP 1,142.27 per ounce. 

Yesterday’s AM fix was USD 1,817, EUR 1,332.31, and GBP 1,155.56 per ounce. 

Gold is up this morning as credit rating agency Standard and Poor’s doused cold water over Italy’s capacity to address their public finances.  It would seem that through poor management a dysfunctional political class has done too little too late to address the worsening Italian balance sheet.  As in many other countries faced with severe austerity measures, Italy’s government has underpinned its austerity plan with rosy growth predictions. 

The S&P report states…

The lowering of the long- and short-term sovereign credit ratings on Italy reflects our view of the Italian economy’s weakening growth prospects and our view that Italy’s fragile governing coalition and policy differences within parliament will likely continue to limit the government’s ability to respond decisively to domestic and external macroeconomic challenges.

It then gives three reasons why they will miss their targets for growth:

…. we think that the government’s projection of a €60 billion savings may not come to fruition for three primary reasons:

• First, as described below, we view Italy’s economic growth prospects as weakening;

• Second, nearly two-thirds of the projected budgetary savings in the crucial 2011-2014 period rely on revenue increases in a country already carrying a high tax burden; and

• Third, market interest rates are anticipated to rise.


The Economist – June 11-17th 2011

Italy may be the butt of many international jokes due to the excesses of its political class but its economy is enormous and essential to the eurozone ecnomic integrity.  With debt levels now at 135% of GDP (Global Finance – Public Debt by Country), it is in danger of going down the same road as Greece, (debt-to-GDP 139%).  A crisis here may be too much for the eurozone to handle and may predicate a pan-European restructuring of the euro with global consequences that are potentially staggering.

From the London Bullion Market Association conference, a Bloomberg survey reports that gold could top $2,000 an ounce this year on the back of investor demand and risk aversion with a further 10% in 2012.  No one knows for sure where the gold price will go but as long as governments cower from their responsibilities to balance their budgets and continue to print money instead of paying their bills, gold will likely appreciate in paper money terms.

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SILVER
Silver is trading at $39.45/oz, €28.83/oz and £25.14/oz.

PLATINUM GROUP METALS
Platinum is trading at $1,778/oz, palladium at $713/oz and rhodium at $1,750/oz.

NEWS
(Reuters) 
S&P Italy downgrade new blow for distressed Europe

(Bloomberg)
Chavez Decrees Nationalization of Gold Industry Amid Surging Bullion Price

COMMENTARY
(Reuters)
Analysis – Gold loses lustre as Europe woes boost dollar appeal

(MarketWatch)
Gold inclusion as Tier 1 asset would be huge: LBMA

Mark O'Byrne
Executive Director

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