Europe: Light At The End Of The Tunnel?

Gold is down around 0.7% for the week as of this morning’s London Fix, with silver, platinum and palladium following suit. Worries about Europe have dragged on prices, with the high-profile disagreement between European Central Bank President Mario Draghi and German Chancellor Angela Merkel about the direction of ECB policy.

To throw further angst into the mix, the FT is reporting that the European Commission in Brussels is now calling for far greater centralised ECB control of the eurozone’s 6,000 private banks – supposedly setting the Commission against both Germany and the ECB itself, whom have been arguing for a slower, more decentralised approach to “banking union.”

The media are touting September 12’s German Constitutional Court decision on whether or not the German government should be allowed to ratify the European Stability Mechanism treaty as the big thing to wait for as far as Europe is concerned. This is true, but it’s hard to believe that the court won’t roll over in support of “the project.” This is perhaps less of a knife-edge decision than some are making out.

Europe is still facing serious problems, but the market is less worried now than it was a few months ago. The euro has stabilised above USD 1.25 this week, and the release today of stronger-than expected inflation data for the continent has also helped boost investors’ appetite for risk assets.

European stocks are up while the entire commodity sector (save corn, wheat and soybeans, which have been exceptionally strong performers in recent months anyway) is also gaining. And while precious metals may be down so far for the week, there are solid reasons for thinking sustained price gains are imminent.

Today’s main act will of course be Bernanke’s Jackson Hole performance. We’ll be providing analysis of that on Monday.