Gold makes gains as risk appetite returns

Synchronous corrective moves were in evidence in most markets overnight as risk appetite made a comeback following news stories that Ireland may in fact be the beneficiary of a ‘funding pool’ upon which its troubled banking sector may draw when/if needed. The EU/IMF ‘package’ would be placed into ‘ready’ mode as soon as discussions between officials come to a close and the books of Ireland’s banks are parsed by analysts.

In any case, some ‘tens of billions’ of euros might be offered to solve the problem and prevent contagion from spreading into the recovering eurozone. British banks have more than $222 billion worth of exposure to Ireland and it is clear why the country’s Chancellor of the Exchequer made a “Britain stands ready to assist Ireland” statement at this juncture.

Meanwhile, Greece, which made all the headlines earlier this year, plans to reduce its budget deficit by 5 billion euros in the coming year. State expenditures will be on the chopping block, as will be the prospect of higher sales taxes. At that point, there is a chance that the country’s deficit will be narrowed to but 7.4% of its GDP. Recall that the ‘target’ suggested by Greece’s ‘helpers’ – the same EU/IMF duo that is now grappling with Irish ‘issues’ – was 7.6%. As a result of such moves, the Greek economy is expected to shrink by about 3% in the coming year.

Back in the USA, the overlaying of politics on top of economics keeps being the fashion of the day. It is suddenly legit to take the Fed to task, to speak like an economist even when one is clueless, and to pander to one’s constituents with promises of “Vote for me and I will fix this mess” galore. MarketWatch’s Nick Godt feels that the great narrative on debt and on inflation must be controlled – for obvious reasons that are perhaps not so obvious to voters (and not just in the US). Never mind the danger such an approach possibly poses to the economy (and by extrapolation, on a social level – potentially).

“The key lessons from the Great Depression, that deficits soar after an economic shock as tax receipts drop, and that more, not less government spending is necessary to get back on track when consumers and businesses have stopped spending, has been globally brushed aside.

“The U.S., where fiscal spending that was too small to begin with, has been stopped in its tracks by anti-government rhetoric, as inflation keeps on sliding and growth has stalled. On Wednesday, the Labor Department reported a smaller-than-expected 0.2% rise in consumer prices, while core inflation, excluding volatile food and energy prices, was flat for the third straight month.

Yet, it’s also this week that Republicans sent a letter attacking Fed policy, warning again about inflation. Were they thinking about inflation in China? Or just like China, were they using the narrative to push another agenda, such as keeping in place tax breaks for the rich?”

[Insert ‘interesting, coincidental’ factoid du jour here: Virtually half of Congressional members are millionaires, compared to 1% for society at large in America, notes a post in the Center's OpenSecrets blog. And among this group, eight members of Congress are mega-millionaires, with portfolios above $100 million.]

“Controlling the narrative, they have found, seems to help one’s agenda.” concludes Mr. Godt.

Well, then, if so inclined, you may find the various genres of the narrative relating to the crisis that still has everyone talking and writing, at the link herein.

Until tomorrow,

Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America

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About the Author
Jon Nadler Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America
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