Silver facing first quarterly loss in 10 quarters

In the Lead: “Beijing to the dollar: Who [still] loves ya, baby?”

New York spot precious metals dealings opened with relatively small losses on this last day of June, and appeared to be in search of fresh drivers to countervail ebbing interest and participation by speculators and professionals. Market participants were already showing signs of heading out the door early to gear up for the long holiday weekend. Following yesterday’s 155-to-138 vote of approval for additional austerity measures in the Greek Parliament, the focus shifts to the second round of voting on the measures.

These follow-up votes are supposed to finally secure the release of the next installment of the €110 billion rescue package that Greece was granted last year by the EU/IMF duo. Anti-austerity protests appeared to be waning in parts of Athens and market pundits expect the second round of votes to also succeed in passing the belt-tightening programs. In the final analysis however, the dreaded “D”-event was averted by Greece and the EU community is at least temporarily taking easier financial breaths.

The euro rallied in the wake of Wednesday’s voting but there is a growing realization on the EU that what might have been accomplished at this juncture is the buying of time and the assurance of declining living standards in Greece for years to come. Speaking of living standards, we note this morning that China has cut taxes for low-level wage earners in an effort to allay the deleterious effects of high inflation levels and in order to secure social stability.

While we do not wish to say that it might be ineffective, redundant, or too little/too late, the tax move by Chinese authorities may actually turn out to be little more than comfort for a certain class of wage earners. There are increasing signs that the country’s economy is already cooling, and that the inflation dragon might somehow choke under its own weight after the PBOC set fiscal and monetary tightening measures into motion.

The country’s Manufacturing PMI index fell to 50.1 this month; teetering on the halfway pivot-point. Growth in China’s money supply has fallen in half on a year-on-year basis, domestic bank loans have fallen 25% and the Shanghai Composite Index has lost 10% since the middle of April. Such patterns have prompted some analysts to project a hard landing for the Chinese economy. Chief among such less-than-enthusiastic China-oriented forecasts is the one the author and economist Gary Shilling has offered up.

As regards the aforementioned projections, certain ultra-bullish gold bugs who expect the flat lining of the US dollar’s vital signs to come about any minute now, might take note of the following passage in Mr. Shilling’s analysis of China and its massive reserve holdings:

“China also won’t be selling its $1 trillion in reserves of U.S. Treasuries in great amounts, as some have feared. The Chinese are well aware that doing so would be disastrous for their economy, because the resulting nosedive in Treasury prices and the dollar would decimate the value of China’s remaining holdings of U.S. debt and other assets. A global depression might well ensue, with China and other export-dependent countries as the biggest losers.”

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