The Conversation (0)
Expectations that the European and US budget problems will lead to a silver rally are being countered by a stronger US dollar .
By Michelle Smith–Exclusive to Silver Investing News
The vast majority of participants in various weekly price surveys were bullish on bullion’s prospects, but near total Eurozone meltdown and erosion in the common currency derailed the bullish track for precious metals and ended up bolstering the dollar instead, John Nadler, Senior Metals Analyst for Kitco Metals, wrote Friday.
The Eurozone crisis has been dominating the radar and has people around the globe speculating about the fate of the bloc and its shared currency. Whether or not they survive, many insist that the combination of Europe’s debt problems and the handling of it will be the straw that pushes investors to confirm their distrust for currency. Safety seekers, they say, will shun paper and flock to hard assets like silver.
This is the thinking of individuals who appear to have already written off the US and with it the greenback. Volatility in the markets is irrefutable proof that investors are worried and that they will make rapid and emotional moves to protect their assets, but it appears that those moves are starting to include a shift away from metals and back to the USDs– debt and dollars.
With regards to the flight to safety, investors continue to reveal that they are caught in love triangle with the dollar. Money flows out, but then it returns because many investors simply are unwilling to leave their cash in any place other than the absolute safest of places and many keep reaching the same conclusion that that is the US.
This is confirmed by data released today by Bloomberg that shows foreign bank deposits at the Federal Reserve have more than doubled to $715 billion from $350 billion since the end of 2010. Bloomberg also noted that the biggest rally in government bonds since 2008 shows no signs of letting up even as yields are about the lowest on record.
Furthermore, goods and services still have to be paid for and we are quite a ways from a world where that is done in metal. There are those who are anxious to see the dollar dethroned, but whether they like it or not that moment has not yet arrived.
CME Group reported that companies in Europe that have been accepting up to 100 percent payment in euros from Asian counterparts since 2009 have begun notifying their trading partners that they want accounts settled in dollars again.
Some may be quick to point out that the US has its own financial problems to be reckoned with. Though the supercommittee is expected to announce failure that hasn’t been enough to rob investors of their confidence in the US. Also, two important differences need to be kept in mind with regards to the situations in Europe and the US. First, the dangers in Europe are considered pressing, whereas in the US, the impact of the supercommittee failing has no real immediate effects. Second, Europe is suspected to be heading into recession whereas economic data from the US has been improving.
Time and time again, silver’s inability to lure safe haven cash has been highlighted. The current economic uncertainty does not appear to be an exception. Instead of today’s first silver report from CME Group said the metal was behaving like a physical commodity and silver prices were down. The dollar, it said, was stronger against most of the major currencies.