EU Bank Moves Lift Precious Metals

Gold and silver prices surged on Friday on market hopes of a “breakthrough moment” in the eurozone debt crisis, following the conclusion of the latest European Council meeting in Brussels. Though the European Union is taking concrete steps to move the eurozone towards a banking union – with the new $634 billion European Stability Mechanism to be up and running shortly, which will supply funding for bank rescues – EU leaders are still stalling on the question of “Eurobonds” and other moves towards full fiscal union.

The bank plans still needs to be approved by national parliaments. On top of this, the Spanish bank bailout is expected to cost $125bn, while over at the Washington Post Brad Plumer speculates that Italian banks could end up claiming as much as $200bn from the fund. As the following chart from his article illustrates, Europe’s problem – among others – is that its banking sector remains enormous as a proportion of the continent’s GDP.


Irish bank liabilities alone amount to around $1.74 trillion, so it’s not hard to see why the ESM could prove insufficient to the task of rescuing the eurozone. And given that Germany remains adamant that no more German money will be given to the fund – though as we’ve found out over the last few years, “no” often means “maybe” as far as Angela Merkel in concerned – we could very soon be back to that familiar sense of eurozone desperation.

This all comes back to the easily understood point that central-bank money printing is the only thing than can save Europe’s banking system, and by extension, European governments. “Happily” for the UK, it looks like the Bank of England is about to oblige, with another £50bn of quantitative easing expected this week. More will follow in the months and years ahead.

Silver gained more than 5% on Friday finishing just above $27.50, while gold was up 3.5%, settling just north of $1,600. Both have slipped a little in trading this morning, however, and given that less has changed in Europe than many had been expecting, the metals may continue to struggle in the short-term.