EU Treaty Talk Calms Markets

Precious metals had a quiet day yesterday, with gold and silver both consolidating following Friday’s rally. Gold continues to face resistance at $1,625, while $28.50 remains a point of selling pressure for silver – as has been the case now for the best part of the last month.

James Turk sums up Friday’s gold and silver strength in a new King World News interview: “even though stock markets around the world the past few weeks have generally been in a nosedive, gold, silver and the mining shares are climbing higher. Independent strength like this is normally very bullish, and it bodes well for the precious metals and mining shares in the weeks and months ahead. It also suggests that, like last year, this summer is going to be another good one for the precious metals.”

American stocks remained under pressure, not helped by factory order data that showed sustained weakness throughout March and April. The euro got a slight lift – as did government bond yields – with increasing media talk that the European Commission is setting the stage for a new European Union treaty – one that would mark a great leap forward in terms of fiscal integration. EU leaders will apparently work on a road map to “fiscal union” at the next European Council meeting, to be held on June 28-29. Expectations are growing that the Commission will unveil new bank bailout plans at this meeting, though this will also require a new treaty, as current EU rules forbid direct payments to struggling banks.

All of this is at least giving the impression that politicians are once again regaining control of events. But the fundamental problem remains: that these kinds of ambitious fiscal union plans need time to be developed and accepted by national parliaments, whereas markets are looking in vain for quick fixes. Nevertheless, with attention once again slowly shifting back to economic problems in America, the EU might get some breathing space over the summer months.