David Morris
THE first half of the year came to a close last Thursday. Events in the final few days of June helped to lift equity markets and temper earlier losses. The FTSE 100 ended the month virtually unchanged, while the Dax finished in positive territory rallying over 5 per cent from its low-point. In the US, the Dow, Nasdaq and S&P ended 1 to 2 per cent lower in June, and while effectively flat for the quarter, all three indices are now up over 5 per cent for the year. The first day of July brought further stock market gains, boosted by some desperate short-covering from traders anticipating a sell-off once the Fed’s QE2 stimulus programme concluded.

Helping to lift equities, the Greek parliament voted “yes” to further austerity measures, and even agreed over how spending cuts, tax rises and its privatisation programme should be implemented. This was enough for the EU/IMF/ECB to release its next €12bn bailout tranche to Greece, and will also help the troubled country secure agreement from the troika for a second bailout. Yet most analysts believe that Greece will struggle to follow through on its commitments, and that default is postponed, not avoided.

Meanwhile, precious metals have come under intense selling pressure. No sooner did they appear to recover following the vicious May sell-off, than they suffered another concerted attack, driving them back to test significant support levels.

Initially, gold and silver appeared to be victims of a generalised “risk-off” trade, which also saw steep falls in equity and commodity prices. But the stock market rally has countered that argument to some extent. Another possibility is that leveraged long-side speculators are flying out of precious metals following the conclusion of the Fed’s $600bn asset purchase programme. After all, the Fed’s stimulus has found its way into just about every asset class imaginable, as primary dealers have soaked up the extra liquidity and hosed it back into riskier markets. If so, then this could be the speculative froth finally being blown off precious metals. There could be more to come, but the bulls will be hoping that the selling pressure now subsides, and that support holds on a closing basis around $1,475 and $1,450 for gold, and $33.80 followed by $31 for silver.