The world seems a very uncertain place at present, says Steven Zoernack
Washington, DC (PRWEB) March 18, 2011
Focus: Confusion reigns after world events
Given the scale of events of recent weeks, according to Steven Zoernack, this week’s Focus will look at the major driving forces and their potential impact on both the macroeconomic situation and also the precious metals. While events in Japan have taken Mena off the front pages, the region remains incredibly volatile. Although Friday’s ‘day of rage’ in Saudi Arabia proved to be a non-event, clashes between pro- and anti- Gaddafi forces in Libya have intensified and violent protests have taken place in the capitals of Bahrain, Yemen and Egypt.
Elsewhere, says Steven Zoernack, recent downgrades to Greek & Spanish credit scores have dealt a fresh blow to eurozone confidence. Peripheral bond yields have widened again over the German benchmark on default jitters; premiums on Greek and Irish 10-year notes are at their highest since the start of the year and the Portuguese/German premium is at its highest since the end of November. While the euro is holding close to 1.40 against the dollar amid expectations of interest rate increases, the continued rise in bond yields will only compound default concerns, boosting the cost of renewing debt. The situation in Japan is potentially the most critical, particularly after technicians at the Fukushima nuclear power plant issued a meltdown warning following a second explosion in three days. As well as the huge loss of life in Japan, the quake and tsunami are likely to have serious financial implications, with the country’s economy expected to contract further after the 0.3-percent decline of the fourth quarter. The temporary pullback in oil prices will help take some of the inflationary pressure off the macroeconomic picture, while the longer-term implications for metals following the natural disasters in Japan and to a lesser extent New Zealand are likely to be bullish as the rebuilding process starts. But US equities are showing some signs of distress after the Dow failed to hold 12,000 points, which could be a sign that another rout of risk appetite is brewing. According to Steven Zoernack, equities and commodities may be about to correct further – this will probably be negative for bullion in the short term but bullish over the medium-to-long term according to Steven Zoernack.
Conclusion – The world seems a very uncertain place at present, says Steven Zoernack, with the unrest in the Middle East threatening oil supply and therefore global economic growth, high debt in Europe undermining economic growth and quantitative easing in the US debasing the dollar. Now Japan faces a massive reconstruction bill that is bound to put pressure on its finances. Each disaster – be it a banking crisis, a sovereign crisis, a corporate bailout or the aftermath of a natural disaster – requires a massive injection of paper money. Given that most governments have had to create this extra money, talk of currency debasement and inflation comes as no surprise. In this environment, commodities are likely to rise in value relative to paper money, the value of which is being debased.
On balance, we remain bullish for bullion but we feel the risk of a broad-based period of risk reduction has increased and, as we have seen on many previous occasions, such a development often takes all asset classes down initially, with the secondary reaction then seeing money return to the safe havens first, according to Steven Zoernack.