We start the week with news of changes at top in France where the French President Nicolas Sarkozy becomes another victim of the financial crisis and subsequent austerity measures. ‘Sarko’ as he is know by some has been ousted by the socialist leader Francois Hollande, who has been elected on a platform that includes reducing the retirement age, a 75% tax on those who earn more than one million euros and the re-negotiation of the European ‘Fiscal Pact’ with its European partners.
We understand the voters frustrations but do they really believe that these promises can be kept. France is broke. France has lost its AAA rating. The debt is getting bigger and not smaller. We will now need to watch for a softening of the ‘tone’ from President Hollande, as we expect reality to dawn on him as it has on everyone else and like most politicians his stance will change on the realization that he can not deliver on his campaign promises.
We expect this change in leadership to have a small but significant effect on the financial markets as this tad of uncertainty will exert downward pressure on the Euro and conversely upward pressure of the US dollar. The strengthening of the dollar will lead to a slight fall fall in both silver and gold prices.
Greece has been out of limelight recently as concerns of the financial nature moved to Spain. However, as the Greek election results start to come in we can see that the two main parties have been well and truly given a slap in the face, as the Greek voters have turned to the myriad of small parties in an attempt to get out from underneath the weight of the austerity measures that are currently being imposed. The two main parties may have to form an alliance and try govern together, but they only have about 40% of the vote and a united opposition could block their every move. The smaller parties appear to be thriving on an ‘No to Austerity’ platform and should they form the next government, well we can kiss goodbye to all the hard work at those summit meetings that were held as part of the European effort to keep the Greeks in the European Union. For now though we have to wait for three days as the parties try and form some sort of coalition government. Again this is more uncertainty and the financial markets do not like being kept in the dark, so we expect more pressure on the Euro as the markets open with the dollar being the beneficiary and gold and silver drifting lower.
No surprise here as Vladimir Putin will be become Russia’s President on Monday. Interesting to note that not everyone is happy with the outcome of these elections as opposition protesters clashed with police not far from the Kremlin. Again this is a situation which is not totally cut and dry as the discontent looks set to rumble on as the disgruntled element of the population try to get their feelings made known.
All of this political turmoil will will have a know on effect in Asia, where the financial markets have opened in a negative mood. The Hang Seng is down 2.45% and the Nikkei is down 2.5%, as we write.
We can only conclude that this is going to be a rather volatile week for investors, a time to wear your hard hat and exercise patience with your trading activities. Our intention is to hold our core position of physical gold and silver and the associated mining stocks, but not to increase our exposure any further just yet. We have maintained this stance of not buying precious metals mining stocks for some time now as they did not offer the value in terms of getting a real bargain.
However dear readers, we could be getting close to that moment so stay tuned as things are changing at an accelerating pace and we may need to move fast when the time comes.
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