Monday, June 28, 2010

Superior Gold Group - Gold climbs as bad economic news persists

Concerns about sovereign debt, weak employment and a deflating housing market all helped push the price of gold up today. The yellow metal rose by $12.80 to $1,247.60 per troy ounce, off of its earlier record highs but its strongest performance this week.

Traders and economists fretting about Greece's continuing instability commanded the headlines today, with stocks plummeting after an indecisive day yesterday. Credit-default swaps (CDS) on Greek debt rose to a record high of 970 basis points, reported Bloomberg. CDS rates rose on Spanish and Portuguese bonds as well, which many experts believe could be the next dominoes to fall in Europe's debt game.

Stocks began pricing in these fears yesterday after the Federal reserve took a steady, predictable course and kept interest rates near zero. In their statement, the Federal Open Market Committee (FOMC) cited the continuing weakness and precarious situation of European sovereign debt as the chief problem going forward.

One piece of good news was word from the Department of Commerce that orders for durable goods were up almost one percent, possibly reflecting some long-term optimism about manufacturing or the economy as a whole.

However, the real news was in the housing market.

New home sales and existing home sales both collapsed last month, as a federal tax credit designed to support the real estate and construction industry expired. It seems likely that the market will remain depressed for a relatively long time, as the tax credit probably pushed many buyers into closing in the first half of the year.

The day's trading left gold and silver, along with copper and coffee futures, as the best-performing assets of the day. Once again, sustained economic weakness is good news for hard assets and commodities like gold, backed by inherent value rather than questionable loans or mortgages.

With gold having fallen back from the $1,260 per ounce level, it might be time to consider an investment in dealer gold and silver to hedge or even replace the increasingly volatile motion of stocks and equities. As the debt crisis seems to spread rather being contained, it's hard to say which country will be next to place its head on the block.

If the U.S. keeps issuing debt - and the Treasury will auction off another $30 billion of 7-year debt today alone - it could find itself on the wrong end of the CDS business, with investors paying a massive premium to insure their US debt and driving up the country's cost of borrowing.