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Cyprus Concerns Keep Gold Underpinnedby Peter A. Grant
Mar 19, AM 
Gold remains above $1600, underpinned by continued uncertainty about the broader implications of the Cyprus bailout. Additionally, the Fed's two-day FOMC meeting begins today amid expectations that Bernanke will try and be even more clear about the policy path moving forward.Cyprus's Parliament is now expected to reject the terms of the EU bailout, based largely on backlash against the savings account levy. While a revision was pitched that would have exempted smaller savings accounts from the confiscation, it's looking increasingly like Parliament is disinclined to incur the wrath of the voters. With both the banks and the stock market closed until Thursday, it will be interesting to see what a rejection of the bailout will look like when those institutions reopen. A run on the banks seems likely, but with no bailout agreement in place, the ECB may not be able to provide the needed liquidity. Yes, Cyprus is tiny, but a default by a member if the European Union could have far reaching implications. It would once again bring the shortcomings of a monetary union with no political or fiscal union to the fore. It could result in Cyprus leaving the EMU, which would lead to renewed speculation about Greece and other troubled southern European countries. The FOMC is widely expected to hold steady on rates when policy is announced tomorrow. There is talk that chairman Bernanke is going to take more firm control over the message as more hawkish rumblings at recent meetings caused longer term rates to rise on concerns the Fed might begin removing accommodations sooner rather than later. Bernanke is expected to make is known in no uncertain terms that the Fed will keep its foot on the monetary gas pedal even if the economy shows signs of real improvement. He has already said as much in recent testimony on The Hill, but there are a number of regional Fed Presidents out there that continue to express more hawkish biases. I don't think Bernanke will attempt to silence those hawks, but I do think he will seek to remind the markets that he and the doves remain firmly in control of the FOMC. NEWSLETTER SIGN-UP Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here. |
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Tuesday March 19
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