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Who’s going to blink
first? That’s the question many market watchers find themselves
pondering today, following European Central Bank President Mario Draghi’s comments yesterday during a news
conference in Frankfurt. Draghi confirmed that the
ECB is prepared to conduct “unlimited” “unsterilised”
“outright open market operations” to cap the rise in PIIGS bond
yields, but stated that this would only occur once eurozone
leaders had activated the twin EU bailout funds (the EFSF and ESM).
As Ambrose Evans-Pritchard reports though, this will require
Spain – and perhaps Italy – to make a formal bailout request, and
sign a memorandum giving Brussels total fiscal control over Spain. Not
surprisingly, Spanish Prime Minister Mariano Rajoy
has thus far been dead against this, while – as ever – the Bundesbank remains opposed to naked money printing from
the ECB.
And while Draghi
has talked the talked, he is still dragging his feet on the actual walking
part of his pledge to do “whatever it takes” to save the eurozone. He states the ECB will start “drawing up
plans” over the coming weeks for bond purchases, but as Bob Wenzel comments, printing money – or if you
want to be more accurate, the electronic creation of new bank deposits in
exchange for sovereign bonds – is not exactly rocket science from a
technical perspective. Wenzel argues that Draghi’s
coyness is a means of pressuring the German courts into accepting
Berlin’s participation in bailouts. As this column has pointed out
before, fear and uncertainty can be good allies of the EU
“project” if they result in European governments being pressured
into sacrificing more of their few remaining powers to Brussels.
What has this meant for gold and
silver? Well, given the lingering uncertainty about when exactly the ECB will
act, and similar reticence from the Bernanke Fed, the metals continue to
trade sideways. But as Jim Sinclair says, the longer central banks wait, the
more QE they will eventually have to do. And the more QE they do, the more
violent the eventual upside breakout in precious metal prices
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