EU Debt Restructuring Leads to Bailout Euphoria / Silver to Double to $100 Says Citigroup

Published in Market Updates  Precious Metals Update  on 22 July 2011

By Mark O’Byrne


Bailout euphoria has returned to markets with Asian and European stock indices rising on renewed risk appetite. 

Gold has recovered from yesterday’s slight sell off (0.6% in USD) and the firm gold price in all currencies suggests that market euphoria is again misplaced. Gold is down only 20 euros per ounce in the last 24 hours. Gold is trading at USD 1,596.10, EUR 1,108.1, GBP 978.50 and CHF 1,310.10 per ounce.


Cross Currency Rates

Along with stocks, European bonds are being bought with gusto. Yields in Greece have plummeted while yields in Ireland and Portugal have fallen sharply. German bunds have been sold and the yield on the German 10 year has risen from 2.5% to 2.88% since last Tuesday (July 12th).

The failure to address the risk of insolvency in Greece, Portugal and Ireland means that the risk of contagion has been delayed but remains.

Real contagion risks remain as do currency risks. The dollar and the euro remain vulnerable to further debasement and depreciation.

With all eyes on Brussels, myopia has returned to markets particularly with regard to the serious fiscal and monetary challenges continuing in Washington.

Another sign of silver’s move from the fringe of hard money advocates and more risk averse investors and savers to the mainstream is seen in Citigroup technical analysis of the silver market which was picked up by Bloomberg.


Germany GOVT Bond 10YR DBR

Citigroup Global Markets Inc. have said that if silver follows similar patterns as seen in silver’s last bull market from 1971 to 1980 than silver could double to over $100 per ounce.

“If the final rally in the last bull market repeated then we can expect $100 over the long term,” Tom Fitzpatrick and two other analysts wrote. “While the high so far this year was at the same level as the peak in January 1980, we are not convinced that the long-term trend is over yet.”

Most institutional players and Wall Street banks have been bearish on silver and have called the silver market wrong for years.

Some have very large concentrated short positions which have been investigated by the CFTC and were likely “talking their book.”

Therefore, it is very unusual to see such a bullish call from a major bank and suggests that at least some of the major banks see the writing on the wall regarding much higher silver prices. They are likely positioning themselves accordingly.

This means that the banks with concentrated short positions, such as JP Morgan, may soon see their silver positions incur even greater losses and we may see the much heralded short squeeze propel silver to much higher prices.

Our long held target for silver of $140 per ounce, the real inflation adjusted high from 1980, remains viable and becomes more likely by the day.

SILVER 
Silver is trading at $39.72/oz, €27.62/oz and £24.37/oz. 

PLATINUM GROUP METALS 
Platinum is trading at $1,786.50/oz, palladium at $803/oz and rhodium at $1,900/oz

NEWS
(Bloomberg) 
Gold May Gain on U.S., European Debt Concerns, Survey Shows

(MarketWatch) 
Gold, silver tick higher in electronic trading

(Bloomberg) 
Silver May Rebound to Test $100 Level, Citigroup Says: Technical Analysis

COMMENTARY
(MarketWatch) 
Silver Will Continue to Win Investors’ Attention Along With Gold

(Financial Times)
Financial Times - Moore, Wienberg and Jessop on the Outlook for Gold Prices

(ZeroHedge) 
Guest Post: David Morgan On Silver Price Manipulation, Delivery Default & Supply Shortage Risks

(24HGold)
The Global Physical Gold & Silver Reserves Race is the New Nuclear Arms Race

(ZeroHedge) 
The Fatal Flaw In Europe's Second "Bazooka" Bailout: 82 Million Soon To Be Very Angry Germans, Or How Euro Bailout #2 Could Cost Up To 56% Of German GDP

(Mineweb)
Jury rules US Govt. confiscation of rare double-eagle $20 gold coins legal


(Bloomberg) 
James Grant: Return to the Gold Standard - "This is not a
threat, this is not a promise, this is going to happen"

(WorldPress)
Psychological Barriers In Gold Prices? ($1,600 Gold) - Brian Lucey and Raj Aggarwal


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