Tags: Parisis | gold | Bernanke | speech

Things Still Remain Too Uncertain to Take On Risk

By    |   Tuesday, 28 August 2012 10:20 AM

This week, many investors will pay a lot of attention to the Jackson Hole, Wyo., annual economic symposium that is organized by the Federal Reserve Bank of Kansas City and where Federal Reserve Chairman Bernanke will give on Friday his much-awaited speech.

Interestingly, European Central Bank (ECB) President Mario Draghi just announced he would not attend the symposium because of a “heavy workload.”

However, German Bundesbank President Jens Weidmann will attend the event.

Investors should take notice that Weidmann is opposed to the ECB buying eurozone sovereign bonds, as is planned by Draghi. By the way, it was Draghi himself who made Weidmann’s standpoint public. Weidmann also openly disagrees with German Chancellor Angela Merkel, who supports Draghi’s sovereign bond-buying plans. You can be sure, the last word has not been said yet on this divergence of opinions.

So, we’ll have to wait and see what all the central bankers, policy experts and academics have to say in Jackson Hole. To find out what Draghi wants to say, we’ll have to wait until the Sept. 6 press conference following the meeting of the ECB’s governing council in Frankfurt, Germany.

On what Bernanke will say on Friday, I wouldn’t put too much hope on him announcing a new round of some form of quantitative easing. I think the second estimate of the second-quarter U.S. gross domestic product number, due out Wednesday, will probably not justify extra easing because U.S. growth will continue, albeit too low for giving much-needed comfort to all parties involved, all the way from the unemployed to investors.

The eurozone is in a completely different situation. The financial crisis continues to give sleepless nights to investors and decision makers, while the risks of a recession continue to grow. ECB stimuli, in one form or another, would probably be understandable, but certainly not enough to give a sound solution to Europe’s practical and legal mountains of problems.

As long there isn’t a EU banking and fiscal union, there won’t be a serious solution to all their key problems. It’s as simple, and as extremely complicated, as that, notwithstanding that everybody still wants to “stabilize” the eurozone.

Once the symposium is over and after we have (hopefully) learned some constructive and, why not, innovating ideas, we will have to face September, when there won’t be a lack of market-moving events, but for which it is still too early for trying to compose plausible outcome scenarios.

Investors should pay attention as the actual and moderate “risk-on” attitude could disappear quickly, not only because of what is taking place in the eurozone, but also because of the slowing of the Chinese economy.

In this context, the Chinese mining group MMG just stated, in their opinion, the era of ever-increasing minerals-commodities prices is over. MMG also said the market is going through a sensible adjustment. Interestingly, a couple of days ago we learned China plans to launch its first gold exchange-traded fund, which could be a positive for the price of gold in the future.

That said, it’s also a fact that more monetary easing by various central banks is still on the way globally, and, therefore, I remain a gold bull, notwithstanding that short-term corrections can be expected to take place from time to time.

To me, things still remain too uncertain to take on risk.

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Tuesday, 28 August 2012 10:20 AM
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