Gold Eases On Growing Sense Japan Nuclear Crisis is Stabilizing

by Peter A. Grant

March 22, a.m.
(from USAGOLD.com) --

Gold has softened modestly as news that power has been restored to Japan's stricken Fukushima nuclear plant eased tensions somewhat. However, whether the plant's cooling system can be restarted remains an unknown and reports of high radiation levels in some food products and potential contamination of the nearby sea remain areas of concern. However, the downside in the yellow metal is thought to be limited due to ongoing geopolitical unrest in North Africa and the Middle East, as well as a weak dollar. As UN sanctioned attacks continue against the Gadaffi regime in Libya, anti-government protests are escalating in Yemen and Syria.

Meanwhile, while the the global investment community is understandably distracted by events in Japan and the Middle East, the pot that is the European sovereign debt crisis is beginning to boil on the back-burner. Irish PM Kenny has pledged to stand firm on the country's low corporate tax rate and that he will also shelter Irish taxpayers by insisting that bank bondholders take a haircut. These positions are undoubtedly causing the rest of the eurozone fits as they prepare to approve a permanent bailout facility later this week in Brussels. It looks like Ireland is going to attempt to define the terms of any future aid from the EU, but if such terms are not agreeable to countries like Germany, what are the implications? Might Ireland be ejected from the EU, or simply quit and try to make its own way by restructuring their debt and returning to the punt? The notion that bank bondholders -- and sovereign debt holders for that matter -- must be protected at all cost, defeat the whole purpose of a bond market.

At the same time, Portugal's main opposition group has said it will not support the calls for further austerity measures from PM Jose Socrates' minority government. Socrates has pledged that he will resign if the measures fail to pass a vote that is likely to take place tomorrow. However, even if the opposition is able to form a government -- which is doubtful -- they would be in exactly the same straights: Needing a bailout to avoid insolvency, with the EU likely demanding more austerity as a condition of said bailout. With a lot of highly priced debt coming due over the next several months, if either Ireland or Portugal default, the markets attention will shift once again to Spain, Belgium and perhaps Italy.

If all this renewed uncertainty in periphery Europe increases the sense in the major EU economies that they will be throwing-good money after bad, support for a tentative deal hammered out earlier in the month on a permanent bailout facility may well collapse. There is indeed already considerable opposition to further bailouts in Germany, where Chancellor Angela Merkel is taking a significant political risk as she attempts to put the bailout question behind her ahead of important regional elections.

Peter Grant is USAGOLD's resident economist and a well-known analyst globally in the forex and precious metals markets.

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