GOLD: USD/oz1,258.55 | EUR/gr38.35SILVER: USD/oz18.42 | EUR/gr0.5631

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Last Updated: 12 July 2016

The week have started with optimism after a Friday characterized by covering activities by the banks in Europe and after the unexpected data about the US labor market that states an increase in the number of the employees to 287,000 units vs. the consensus that stood to 180000, wiping out the fears over a slowdown in the US labor market and  pointing out the fact that  May and April are both quite “seasonal” months.

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Last Updated: 30 June 2016

MACROECONOMIC  SCENARIO

A currency with no country. This is the Euro. The arrogant presumption of being able to reunite people with the help of the economy. What happened is just the result of a wonderful project created without principles, comparable to a house without a foundation.

But what should be these principles? It only needs just one word: unity, in every way. From the legislation to the  taxation system, then to the debt: cornerstones of a true union, that had never been implemented, not even when there was the possibility in the recent years. In fact, when the European Union was called into question (with the situation in Greece, Italy, Spain, Portugal, Ireland and Iceland), the European Council turned its back and even the BCE has had to submit to the German will for granting a new credit to the banks, by requiring that only 20% was absorbed by the BCE itself. All these signals, generated opposing currents against the union all around Europe, currents that later evolved into the highest democratic form: the referendum. One important aspect to consider, is how we have arrived to such a “simple” thing for such an important decision, without thinking before about a quorum or any strengthening measures that could block the biggest political / economic shock since the fall of the Berlin Wall.

In fact, if we look at the markets, during this  European Black Friday more than 630 billion dollars were burned, while in the world 2,000 Billion Dollars were lost. Substantial declines have affected all the European markets:

Milan

-12,48 %

Madrid

-12,35 %

Paris

-8,04 %

Frankfurt

-6,88 %

London

-2,94 %

Not to mention the British Pound , that against the dollar went back to its 1985 levels, 1,32,  facing a collapse of 12%.

Against the Yen the depreciation was even more violent, going to -16%.

This situation pushed all the investors to seek refuge, moving them  towards the ten-year’s German government bonds and also gold;  Bund has reached an historical negative return of -0.17%, while the yellow metal touched a peak of  1,360 $/oz and 40 € / Gr.

These events led to great uncertainty in the markets. In fact, since there has never been a precedent and since Great Britain is a cornerstone in the Union, the upheavals and the implications of that decision are almost completely unpredictable, both from an economic and political point of view. An example is the possibility feared by Sturgeon, the Scottish Prime Minister, that is of a new referendum to remain within the EU so to leave Great Britain (this road could also be undertaken by Northern Ireland)

Brexit could also affect the stars and stripes’ monetary policy: the will of rising interest rates, already more moderate compared to the beginning,  could suffer a setback as a result of the British decision, that is likely to bring high volatility and uncertainty in the markets for a long time. Two years, in fact,  is the maximum time horizon where the treaties shall cease to be applicable. All that happens within this period of time will remain a mystery, and the markets will respond accordingly. However, even in this moment we can see that the volatility, represented by the VIX index, has splashed aloft since the beginning of  June onwards, going from 13.60 points to the current 26 points. If we also analyze the day of Friday, the increase has been dramatic: + 50% in just one single day.

Even in the view of some international agreements, we can only deduct that the entry into force of the notorious TTIP could be severely hampered , if not blocked , in the light of the political and economic reorganization of the eurozone . In fact , the coming months will be intense , as  even the very essence of the European Union need to be called into question in order to find a new path , identifying June 24th, 2016 as the starting point of a new era , where it is hoped that this currency , that means unity and freedom of movement , will be turned into a real Union.

PRECIOUS METALS

The gold trend has been deeply influenced by the Brexit , with an oscillation, including minimums and maximums, of over  100 $/ oz and  4.75 €/ Gr , reaching the highest peak of $ 1,360 / oz and 40 € / gr  described above.

A unique increase, that however is not addressed to the physical demand for jewelry, which in the first quarter of the year recorded a hefty -29 % , affected both by the high prices and new taxes in India that led to numerous strikes among jewelers causing a decline of 56 % in the demand. We have to remember that India is the largest consumer of jewelry in the world, with over 670 tons consumed in 2015. ETF have been driving the demand for gold in the first three months of the years, increasing the amount of physical gold held to over 310 tons, an increase of 1319 % . The second quarter also showed an increase of more than 165 tons , confirming this trend of strong growth .

Anyway, the most important data that shows the good performance of gold is related to the net long position opened at Comex, reaching the historical record of 33.4 million ounces. The figure is even more impressive when we consider that it refers to June 21st, well before the date of the Brexit referendum. Therefore, we expect a substantial increase in the next output data on Friday, July 1st.

From a technical standpoint, after moving away from the medium-term downtrend, gold remains above the moving average of 50 periods. The technical objective is the resistance at 1,385 $/oz, although the first level to the upside is represented by the peak reached on June 24th of 1,360 $/oz. As mentioned several times, this phase of the market is strongly characterized by an extreme volatility, that generated a gap in the opening of more than 15 Dollars: the market closed at 1303 and opened at 1319. These gaps are often filled in the end and so  the price could return to test the downward share at 1300.

The price in Euro has sharply increased, exceeding  1,200 €/oz (38.60 €/gr) and touching  1,245  €/oz (40 € /gr). The increase in euro was more violent compared to the increase in US dollars, and this is mainly due to the weakening of the exchange rate.

A similar situation occurs for silver, which remains stable above  17 $/oz and points to exceed 18 $/ oz. As for gold, the opening gap between  17.45 $/oz and 17.7 $/oz  might be filled at downward.

In any case , this historical, economic and  political situation is unprecedented  and the rules of the past are unlikely to be applied in the present. Thus , there is only one rule to follow in the markets at the moment: play it by ear.

We therefore recommend extreme caution in taking positions because of the volatility and uncertainty of the markets.

 

 

 

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