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5/17/2012 0 Comments Stimulus environment on the way?Gold moved higher by 2% today while the markets were down almost the same. This was the clearest sign of gold bucking the role of another risk asset and starting to behave like a safe haven asset. While it is way too early to tell if this is a sustained trend or if the metal is having a bounce off of its recent lows but move like these should be watched for two reasons. First it shows the willingness of investors to get into the asset despite its recent correlation to the equity markets and second, the talk by the Fed yesterday saying that more stimulus may be needed could buck the trend longer term with the new theory being; bad news for the US economy is a boost to the likely hood of QE and therefore good for gold. Another factor to watch is the Treasury yield (as well as other global yields) with the 10yr at 1.70% the real returns of safe haven bonds are being eroded by inflation or the threat of inflation (T.I.P.S had a record negative interest rate auction today as well). This makes holding a non yielding asset like gold have more allure for safe haven because there is little or no opportunity costs associated. Definitely something to be watched going forward.
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5/16/2012 0 Comments Stimulus in EuropeFrance and Germany have had talks of stimulus for Greece should the voters commit to the austerity measures put forth by the EU. While this could be an attempt to keep voters from voting in more anti austerity members at the next election (believed to be held June 17th), it should be watched carefully as it could be a start to a greater push for stimulus rather than austerity measures alone. This could help the deleveraging process by keeping growth rates above real interest rates and allow the wealth effect to assist in deleveraging. This could be a far way off, if the EU can implement it at all in a wide scale, but definitely something to watch as it will be a game changer for the approach to dealing with the crisis in Europe and would have implications world wide.
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