By FXEmpire.com
Expectations were in line as the European finance ministers decided to lend 100billion euros to its fourth largest economy to prevent the banking meltdown. The deal triggered a rally in riskier assets in early hours while the euro staged its rally against the dollar.
Gold also fared well by trading over 0.35% at the at present moment. Yet, the EU ministers did not make clear whether the European Stability Mechanism, or the temporary European Financial Stability Facility, will disburse the loan. While the ESM will be preferred because of paid-in capital but the EFSF may not be a preferred creditor because of collateral demand for using the fund in advance. The problem arises, as to actually if there is enough funds to cover the Spanish bailout. The EFSF, does not have the funds secured to cover Spain and the EFSF is scheduled to be phased out and replaced by the ESM, which has not been ratified at this time and still cannot raise funds. It’s a catch 22 situation, as EU leaders want to complete the transaction before the Greek elections.
It is not a balancing act, but more like a ponzi scheme, as Spain is one of the largest economies it is also one of the largest providers to the EFSF and ESM and have not at this time provided the funding to the funds, the question arises how can Spain honor its commitments if it has to borrow funds
Markets should be cautious that the optimism may be temporary given that the European crisis has hassled market over two years and especially extra cushion should be taken ahead of Greek election on June 17. Beyond this, market expectations will be scattered for the big items like G-20 meeting, the EU Summit and the Fed’s rate decision. Each of these days would be well anticipated and would carry extreme fear for melting down financial situation or a dishearten stimuli which could depress buying opportunity. In absence of any economic releases for the day, market is therefore expected to stay elevated as the Europe and US are still to face it. But, as discussed, market anxiety still remains since there is no indication for a proper channel through which the fund will be laid out. We therefore recommend staying short for the metal from higher levels
Silver futures prices are also trading at a positive note taking cues from the Spanish bail out news. The Asian equities are also trading at a firm note while the Euro got a firm footing against the dollar and thereby supporting the market. But as discussed in gold’s above, the initial gains due the news may not remain intact throughout the day as they still not mentioned the way to disburse the loan. In absence of any economic releases from the globe and doubt over the funds may keep market under pressure ahead of Greece re-election on June-17. Hence, silver is also likely to pare gains as the day progress. So, we recommend staying short for the metal at higher prices.
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Originally posted here
