If we see higher risk assets further over-valued, do not chase the move, but rather sell into price ...
Gold Could Be Busy This Week
10/18/2011 9:30 am EST
The G20 meeting over the weekend and the fate of Greece and the other PIIGS will have a direct effect on gold in coming weeks, says Ian Wyatt of The Daily Profit.
Unfortunately, uncertainty about the Euro-bank re-capitalization plan is starting to once again seep into investors' consciousness.
Back in July, eight out of 90 Euro-banks failed a stress test by a combined 2.5 billion euros in Tier 1 capital. Yesterday, a Credit Suisse analyst said that 66 of those 90 banks would currently fail a stress test, and would need to raise 220 billion euro ($300 billion).
And if Greek default (or debt forgiveness) is 60% or more, the amount is probably higher.
Deutsche Bank (DB) CEO Josef Ackerman said that the "actual problem" is that government bonds have lost their risk-free status. Umm, yeah, when those are Greek government bonds, you betcha.
And France's Sarkozy is still talking about making any debt forgiveness voluntary so that credit-default insurance doesn't kick in. But I have a hard time believing Euro-banks will voluntarily go for a big number, like 60%.
So basically, Europe has pledged to have a Euro-bank re-capitalization plan done in ten days. But then, Europe promised 18 months ago to save Greece, and that still hasn't gotten done.
And to make matters worse, Spain was downgraded by S&P yesterday for the third time in three years.
The big question for Europe is: where will all the money come from? At some point, government guarantees lose their effectiveness. That's driving the euro lower against the US dollar.
So another important question is: will resolution of the Euro-bank re-capitalization be bullish of bearish for the euro?
I ask because this has important consequences for gold. Gold should be an attractive asset these days, and I can imagine the European situation being a catalyst for gold prices.
But it likely depends on which way the euro goes. I'm thinking the euro rallies, but we'll see.
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