Why Read: Because the Friday, June 29:
financial markets collective positive reaction; and,
concurrent large increase in the gold price
to the Eurozone 'agreement' on bank funding and austerity measures vividly marks once again the 'trading nature' and volatility of those markets.
Featured Articles: See linked articles at the end of this commentary.
You will have been bombarded with media reports on the agreement reached in the early hours of June 29. Accordingly it is 'enough said' to simply state that the agreement then reached is subject to 'certain conditions', including:
Eurozone banks will be able to be directly recapitalized subject to a 'single supervisory mechanism';
this will be possible for Eurozone countries that are 'behaving well'; and,
in circumstances where there apparently are no assurances of tougher austerity reforms in troubled Eurozone countries.
Commentary: On the face of things, this agreement will not serve to solve any problems in the Eurozone, it simply will result in more quantitative easing. Hence the bump Friday in the both the financial markets, and a rather remarkable concurrent 'bump upward' in the gold price by about U.S.$40.
The fact that the gold price went up is not in itself 'remarkable'. One would expect that in where agreed government measures can do little but result in the economies impacted simply getting 'further into the glue'. What is remarkable that both the financial markets and the gold price moved upward in tandem on that news. This leads to a question of whether gold is trading more like a 'financial market instrument' than it is like a 'safe haven' long-term hold.
nothing positive happened early Friday morning in the Eurozone, save and except 'the patient on live support got an electric shock treatment that will enable him/her to 'keep on the right side of the grass' for a few more weeks, months, but unlikely years;
the financial markets reaction to the news likely demonstrates once again the short-term affect of the high frequency algorithmic trading on the financial market indexes. The trading algorithms are mechanical, they can't 'think for themselves', and can't be adjusted instantaneously based on changes in 'the quality' of the news they act on;
Germany is caught between the fear related to the unknown full consequences of not supporting the Eurozone and the euro, and the human trait of self-preservation. In the end, the latter will win out and only time will tell whether the Germans in the end conclude that:
preservation of the Eurozone; and,
reside on the same end of the economic teeter-totter. It is becoming increasingly difficult to believe there is a teeter-totter with an end 'that big'; and,
- expect the euphoria 'of the moment on Friday' to be short-lived as the realization of the significance and longer-term consequences of the Eurozone leader's agreement last Friday kicks in.
The Half-Life Of The New Euro Bailout Will Be Measured In Weeks
Business Insider, Bruce Krasting, July 1, 2012
Reading time 4 minutes
EU deal for Spain, Italy buoys markets but details sketchy
Reuters, Ilona Wissenback and Luke Baker, June 29, 2012
Reading time 4 minutes
TSX racks up triple-digit gains as investors cheer eurozone deal
The Financial Post, from The Canadian Press, June 29, 2012
Reading time 3 minutes