Gold traders mull Spanish bailout amid deflation concerns

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

And now, let’s move on over to China. As had been suspected, last week’s surprise quarter-point cut in interest rates by the PBOC was indeed a “sweetener” for what was to come in the days ahead; the May list of key economic metrics. The raft of Chinese economic statistics released over the weekend indicates on-going sluggishness in that country’s economy. Line items such as retail sales and fixed-asset investment were down and industrial output remained notably under long-term averages despite a small upward bump in May.

In all, the aggregate metrics still point to China’s worst quarter in three years. If any of the numbers that were made public offered any comfort to the country’s leadership, those would be related to the temperature readings related to inflation. China’s CPI ebbed to 3 percent last month and that was the lowest pace that consumer prices have increased at, in two years’ time.

China watchers concluded that while the economic math contained in the latest statistical harvest points to softness, the need for large-scale, aggressive stimulus by the central bank has not yet become pressing. However, one can remain reasonably sure that the PBOC is not going to take its eyes off of certain areas of the economy that produced dismal readings recently; the manufacturing and services sectors, and consumer sentiment.

Other types of analysts will continue to focus on areas that could offer even more telling clues as to what might be in the cards for the Chinese economy, chief among them, the levels of stockpiles in certain key commodities. Tsinghua University Business Professor Patrick Chovanec advises that “much more significant is [to be] looking at inventories of metals and raw materials to read where the economy is going. Steel, aluminum, and copper are all in alarming overcapacity.”

Also over the weekend, it became apparent that the Eurozone is facing a fourth SOS call for rescue funds by one of the region’s member nations. Spanish officials said on Saturday that the country’s troubled banks will require financial aid, which it alone cannot provide. Thus, it has been reported that the EU will grant Spain a loan of about $125 billion with which the banks in question could be recapitalized. Certain websites immediately jumped on the Spanish news by declaring that it was the catalyst that will now (okay, by the end of summer, give or take) propel gold to $2K and silver to $60 an ounce.

Spain’s real estate mania of the 90’s has come back to haunt the country’s banks with a vengeance. A decline of more than 30% in home values, unemployment levels above 24 percent and a current list of as many as one million unsold properties have resulted in loan delinquency rates as high as 19% at certain banks. There are no solid estimates of the total size of their aggregate toxic assets. Shortly after he hailed the rescue package by declaring that “Europe has been up to the challenge” Spain’s Prime Minister Rajoy flew off to Poland to watch his country take part in a more important…challenge; a soccer match against Italy.

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