Gold lifted on hopes that EU disaster is diverted

In The Lead: “Lotsa News At Eleven, Eleven, Eleven”

In fact, not only are the miners not leveraged plays on gold, now the opposite is true: they are discounted plays on gold. In fact, some of them would be worth more if there were only the actual ore reserves and no corporate apparatus sucking the good stuff out in the name of "value creation". Perhaps this is what's attracted Einhorn's fund to them in the first place but he should understand that a miner will part from his mining operation when you pry the shovel from his cold, dead hands - there will be no "constructive discussions with management about unlocking shareholder value" in this sector.

Thursday’s sizeable sell-off in gold (to just under $1,735) gave way to this morning’s partial buying back of positions basically in lockstep with the ebb and flow of speculative fear and/or optimism related to the European turmoil. Whether or not gold ekes out a gain on the week may not be as material as the fact that this week witnessed the return of significant volatility and non-traditional correlations (see: equities) in the yellow metal. Bullion is still largely being treated as an “opportunity” trade and less like a shelter from the financial storm that is sweeping Europe. Given the intensity of the drama of the past ten days, the real question to ask is why gold has not taken out its previous highs by some hefty margin already.

At any rate, the aforementioned drama is showing some incipient signs of de-escalation now that Greece has a new Prime Minister and now that Italy is about to get one as well. The passage of the belt-tightening measures by the Italian Senate basically paves the way for the country’s President, Mr. Napolitano, to offer the PM job to former EU commissioner Mario Monti perhaps as early as Sunday. Mr. Monti will certainly have a job best suited to “Super Mario” when he takes the helm of the badly listing Italian ship.

However, that vessel is not suffering from a fatal hull breach, as many fear-mongering newsletters might have you believe. In fact, Italy’s deficit-to-GDP (at 4.6% last year) is not unlike that of…Germany (at 4.3%) and is in fact smaller than that of France. Of course deficit is not the same as debt, and we do not mean to minimize the urgency of having to slash the 120% of GDP debt ratio that the country currently finds itself in. But if you ask “Will Italy pull through this?” then we would offer you a resounding “Why, yes, of course it will.”

Something else that doomsday newsletters have been latching onto of late is the idea that the ECB will print mountains of money and turn into the lender of last resort to the region’s troubled entities. Despite assertions from the ECB’s Juergen Stark to the contrary, the chants of “Print! Buy Bonds! Print!” and the putative hyperinflation that such a strategy will “invariably” give birth to, have grown louder this week.

One such “singer” is none other than Portuguese President Anibal Cavaco Silva. Of course, he did not mention what ‘benefits’ such a program might have for the shaky bonds being issued by…Portugal. At least as far as another ECB Council member, Mr. Klaas Knot, is concerned, Mr. Silva might have to keep his hopes on ice in a glass of fine Porto for a while.

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