Gold caught between debt fear and positive jobs

Good Morning,

If you were asked to quickly name the world’s second largest sovereign wealth fund, would Norway be in the running in your mind? Now, if you were asked to guess what it is that this, near half-trillion dollar-sized fund just loaded up on, would Greek debt be anywhere on your list? Well, that is exactly what is happening these days, when it comes to the pile of cash that the oil revenue-rich country has amassed.

Call them Norwegians crazy, if you will. Their Finance Ministry also let it be known that it has not been averse to other debt purchases, especially those seen as toxic by others; namely, Portuguese, Italian, and Spanish debt. In effect, Norway is voting with its pocketbook that defaults among PIIGS are as likely as…flying pigs. Adding to the contrarian-flavoured take on matters of Greek debt, that country’s own Finance Minister that his government’s bonds are no longer “something to fear.”

Lest such actions and words lead one to conclude that someone in Norway is smoking something other than its national dish (salmon), it might be worth recalling that Latin America – circa 1982 – was about to implode (and parts of it did) as regards matters of debt. Mexico comes to mind and so do Brazil and Argentina. Of course, hardly anyone who is running around these days calling for the collapse of the PIIGS mentions just what exactly has taken place in Latin America since the darkest days of 1982.

Safe to say that some of the same folks are now extolling the virtues of the BRICs when it comes to all things good (at least as far as consumption of commodities is concerned), and frequently pointing out that Brazil, for example, is now occupying the eighth spot among the planet’s largest economies, and the top spot among the ones in South America. But, hey, nothing sells like fear. These days, there are plenty of pundits making a cushy living on such sales.

Spot precious metals traded in a bit of a broader range this morning as the aforementioned fears were intermittently countervailed by gains in risk appetite based on certain news flows. Gold prices oscillated between $1,246.30 and $1,260.00 an ounce, and were basically caught between profit-taking on the back of better-than anticipated jobless claims filings last week, and light purchases on perceptions that statements being made about German banks possibly requiring more capital meant something more than the obvious. Profit-taking did appear to dominate dealings in the late morning, however. The jobless claims filings and a narrowing in the US trade deficits appears to do the trick as regards the taking of profits in the yellow metal.

Resistance was indeed expected to become manifest at around the June record level, however, there is no dearth of fresh prognoses for higher prices to come. Last night’s Elliott Wave analysis argued that – should a decline in gold not commence within, literally, “hours” – then there is still a chance for the yellow metal to possibly record a high somewhere between $1,300 and $1,320 an ounce.

Our own projections made several months ago allowed for a possible $1,280 overshoot of the June figure but only under fresh, crisis-like conditions. Thus far, the resemblance to Q2’s crisis conditions has been as close as that between Ben Stiller and George Clooney. The two of them are both actors, but that’s where that stops. See Norway for further clues about the “imminent risk of default by Greece” that has been fueling some of the recent safe-haven bids on gold by certain spec funds.

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