Gold traders mull Spanish bailout amid deflation concerns

In The Lead: “Taking a Slowing Boat to China”

Speaking of market forecasts and of the $1,640 value level in gold, the latest projections on gold from the CPM Group indicate that the firm expects the yellow metal to average…$1,639 per ounce this year. The consultancy said that “precious metals are at a cyclical peak in a secular, long-term bull market.” CPM also projected a $30 per ounce average price for silver for the current year.

The research and advisory firm identifies two of the components that are contributing to this “cyclical peak” in bullion prices as being: a) a waning investments demand owing to near-record prices, and b) a tempering of previously overblown anxieties about the system. CPM notes that “One should realize that a bull market, in any asset, carries with it the seeds of its own ending. Prices ultimately rise to levels that shift supply, demand and investment demand.

The analytical group at CPM also cautions that “This is an immutable economic law, although one which investors repeatedly ignore, whether it is in gold, copper, bank stocks, real estate, Internet stocks, or so many other assets.” CPM said that investors [have] now distanced themselves from “the unbridled, sometimes irrationally overblown, fears of imminent financial system collapse and economic depression that had been driving them to buy enormous amounts of gold and silver regardless of the price, until September 2011 [when prices peaked at $1,920 and change].”

Spot metals dealings in New York this morning opened on the plus side for all components in the complex but gold.  The yellow metal was quoted at $1,591 down about $3 while silver climbed 15 cents to $28.68 the ounce. Platinum was up $16 at $1443 and palladium advanced $6 to $619 per ounce. No changes were reported in rhodium at $1,225 the ounce. In the background, the US dollar held firm near 82.25 on the index while the euro retreated to just above $1.25 and overnight gains in Spanish equities and oil were pared after the effects of the Spanish bank bailout news faded a bit.

In general, while the news from Spain did encourage gloomy euro players initially, they are still seen as having greeted it with only tepid sentiment and they appear to now be anxiously focusing on the upcoming Greek elections on the 17th. Certainly, judging by the yield on Spanish bonds (now at 6.38% and up from Friday’s 6.24%) suggests that the market is looking beyond the bank rescue and is beginning to price in a sovereign debt “problem” (we don’t want to jinx this by using the word “default”). Some “vigilantes” have already begun looking even beyond Spain and are pulling Italy into the crosshairs.

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