With gold and silver prices seemingly on the move investors in the metals are holding their breath to see what happens next. The global stock markets are sitting on a powder keg, and although this week is relatively calm in regards to potential shocks, either of two events could set it off.
The first is the report on new jobless claims. Following on the heels of last week’s news, it would have to be pretty dismal to have any dramatic impact. None-the-less, a turn for the worse will put more pressure on the Fed.
The “improvement” in the unemployment picture of late has been the only selling point for the Fed’s policies. Any negative news this close to the next FOMC meeting could have a profound effect on the action – or lack thereof – that it takes.
What is more ominous, however, is Thursday’s Spanish debt auction. For the past several weeks Spain has been frantically waving the red flag trying to call attention to the severity of its problems. If the auction goes badly all hell could break loose.
Yet the European Central Bank has just announced that it will hold interest rates to 1% for a sixth straight month, throwing another bucket of cold water on Spain’s hopes of getting any relief.
Not long ago Europe was showing some signs that it wouldn’t go down the same ill-fated path as the United States. Austerity was the word of the day and it looked as though the ECB would allow interest rates to rise so the euro could get naturally back into balance with the markets.
That was the action taken by Paul Volcker back in the 1980s. It was a bitter pill but it gave the dollar a fresh start that lasted nearly 30 years. Of course Europe’s economy is a lot weaker than was ours at the time, but it would have survived. In light of the problems across the pond, it may well have brought about a stunning reversal of fortunes.
Instead Europe now faces the threat of escalating bank runs. Only an enormous infusion of currency can keep them solvent. Fire up the presses.
In the long term an implosion of the euro will cause gold and silver to soar. In the short term, however, assuming the Fed allows Europe get out of the gates first, the dollar could benefit handsomely. If that’s the case, gold and silver may have to wait a while longer.
We have to wait two more weeks to find out what the Fed will do about deteriorating conditions here. We’ll know about Spain tomorrow. Gold and silver prices may be in for their strongest test since this crisis began, but if current prices are any indication, they are well up to the task.