GoldVest's Weekly Bullion Report .... The Debt Saga

According to Steven Zoernack, Managing Director at GoldVest, European debt is likely to remain in the headlines and with talk that France, a core EU member country, might suffer a debt downgrade if they do not cut their deficit, is likely to keep the market nervous, as it increases the risk that the debt situation in Europe deteriorates further.

According to Steven Zoernack, Managing Director, GoldVest, European debt will hog the limelight. If France, a core EU member country, fails to cut their deficit is likely to suffer a debt downgrade.

Focus: The Debt Saga

Despite of the efforts of ECB and IMF, the huge fiscal deficits continue to rise along with the threat of default by the peripheral eurozone nations. A study of the recessions by the IMF suggests that recession from global recession and financial crisis takes longer time to recover. This is because the latter is followed by sovereign debt crisis as nations suffer from the viscous circle of burgeoning deficits, surging debt, downgrades and default. Portugal, Ireland, Italy, Greece and Spain have gone through the first three stages. The spiral created by the investors have made it difficult for these countries to service their debt by raising the debt premiums to record levels. In such a scenario, the question of how the default will affect the financial markets arises. But before jumping to conclusion, it should be remembered that history has proven that financial crisis is followed by sovereign debt crisis, it is further followed by currency crisis. If a default happens, gold and silver is expected to fall, but the secondary reaction is to see the rise in prices as investors seek refuge from fiat currencies.

Technical Analysis- Gold

Gold started to dip last week giving an indication of prices dropping back towards the $1350 area. However, prices gapped higher on Monday and seem to have taken prices off the danger list for the moment. A move down and close below the 50 DMA at $1370 is likely make the market vulnerable again. The lower trend line on the chart is at $1350 , beyond this level would trigger alarm. On the upside we would start getting bullish on a close back above the former support line which is at $1,390. The stochastics have swung higher in line with the gap higher – this bodes well for the short-term.

Technical Analysis – Silver

Silver prices held up better than gold prices last week, according to Steven Zoernack, with the up trend line and recent lows generally holding. This suggests good underlying support that should give confidence to existing longs.

Like gold, prices gapped higher on Monday, prices have already closed the gap but have managed to hold up high. The stochastics have also crossed higher and seem to have done so with determination which bodes well. Judging by the strength of the up trend line, the overall up trend remains strong and that should mean dips continue to attract buying. We would expect good support at the up trend line at $28.76, but should that not hold then between $27.98 and $28.05. On the upside we would start to get increasingly more bullish as priced move up through $29.62, $29.96 and then above $30.20. Overall, expect dips to remain well supported, although the bullish view would change on a close below $27.90. Conclusion – Steven Zoernack feels that Gold and Silver prices remain well supported, the fear of deterioration in European debt situation is the main short term driver in the market. Another factor giving boost to bullion prices is the fear of inflation. This is because of better US economic data, the combination of a stronger recovery in US and loose monetary situation.

This is also evident in China, where pick-up inflation is boosting demand for gold. Presently, the EU debt situation is escalating and reducing faith in the euro. Therefore we would expect safe-haven buying of gold and silver to continue, says Steven Zoernack.

Contact Information:
GoldVest
1701 Pennsylvania Avenue NW
Third Floor
Washington, DC 20006
Steven Zoernack