More hot-air and promises-of-promises in Europe as gold looks to finish the week up

Once again Europe is ‘saved’, and once again the market response has been a knee-jerk pop higher followed quickly by a shoulder-shrug that any Frenchman would be proud of. Why the ambivalence to this latest proclamation that Europe is saved?

Two basic reasons jump out – firstly this is hardly the first time that the central planners have back-slapped themselves, only to have their hopes dashed by the market in the following weeks.

Secondly it is the wording of the Euro Area Statement itself – to call it vague would be an understatement. From the release:

We affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012. When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly. This would rely on appropriate conditionality, including compliance with state aid rules, which should be institution- specific, sector-specific or economy-wide and would be formalised in a Memorandum of Understanding. The Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme. Similar cases will be treated equally.

We urge the rapid conclusion of the Memorandum of Understanding attached to the financial support to Spain for recapitalisation of its banking sector. We reaffirm that the financial assistance will be provided by the EFSF until the ESM becomes available, and that it will then be transferred to the ESM, without gaining seniority status.

We affirm our strong commitment to do what is necessary to ensure the financial stability of the euro area, in particular by using the existing EFSF/ESM instruments in a flexible and efficient manner in order to stabilise markets for Member States respecting their Country Specific Recommendations and their other commitments including their respective timelines, under the European Semester, the Stability and Growth Pact and the Macroeconomic Imbalances Procedure. These conditions should be reflected in a Memorandum of Understanding. We welcome that the ECB has agreed to serve as an agent to EFSF/ESM in conducting market operations in an effective and efficient manner.

We task the Eurogroup to implement these decisions by 9 July 2012.

[emphasis ours]

So basically there is some vague commitment to take a decision on making a commitment.. by the end of the year – all the while the ESM has still yet to be fully ratified. Little wonder any Euro-phoria lasted about as long as it takes to read the release itself.

Rather remarkably gold has remained pretty tightly in a range this week and is looking to close out the week with a modest gain.

Gold $:

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Gold £:

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Gold €:

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At the moment it looks like the longest period of gold’s consolidation/correction throughout its entire bull run that started in 1999 looks set to go on a little while longer yet.

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Link to this article: : http://www.goldmadesimplenews.com/gold/more-hot-air-promises-of-promises-europe-gold-looks-finish-week-7204/

Posted by Thomas Paterson on Jun 29 2012. Filed under Analysis, Gold News, Markets. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.