SCOREBOARD: Gold rush

Gold pushed through the $1,600 mark overnight ( $7 from 1630 AEST) and currently sits at $1,605 – a new record. It's symptomatic of the broader political problems that are infecting both sides the Atlantic. Politicians seem blissfully unaware of the damage they are dong, let alone cognisant of the problems that must be addressed. So, for instance, the proposal from some European governments (and companies I might add) that private holders of Greek debt should take a haircut of 30-50 per cent has seen the risk premium on Spanish and Italian debt surge.

Last night alone the Spanish yield was up 30bps to 6.3 per cent, and the Italian yield was 20bps higher to 5.97 per cent. The fear obviously is that if Europe cannot defend Greece, then they will surely be unable defend Italy and Spain. The whole banking system would be under threat and a broker report was released last night suggesting that if haircuts were applied across the periphery, then something like 27 banks would fail the stress tests rather than the 8 or 9 revealed in the EBA tests – which assume no default. But the Finns, the Dutch and some Germans want haircuts – go figure. It's as if they had no understanding of what they were proposing. So it's little wonder gold is up almost $155 over the month and about $370 over the year. Silver didn't have a bad session either, up just over 3 per cent for the session.

There is actually a plan being floated which does sound about 1000 times more attractive than another GFC. It involves placing a modest and temporary tax on European banks – kind of like a 'let's try and avoid screwing up the world' tax. As a compromise solution it sounds good to me. It meets the requirement of private sector involvement and has the additional attraction of avoiding default and risking a contagion that could throw the world back into the dark ages. It is expected that this could raise €10 billion per year (please note that this tax cannot be compared to the carbon tax in Australia, which actually harms the economy whilst at the same time doing nothing to reduce emissions).

Nothing is clear though, and for the moment it is still risk off – VIX up another 7 per cent last night. Indeed, not a lot of comfort was taken by a Republican pledge to avoid any default scenario. Well that's according to Geithner. So outside of gold and silver, moves elsewhere were either small or bad. Well that's not quite true – the Swiss franc hit a record in trading overnight (currently at 0.8177) as safe haven flows accelerate. But equities for instance, the only other major mover for the session, were offered across the board, with financials, industrials and consumer services leading the way down (note that IBM reported after the close with profits beating expectations). At the low on Wall Street, the S&P500 was down 1.5 per cent but managed to recover some of that to close 0.8 per cent lower (1,305). The Dow was then off 94 points or so to 12,385, the Nasdaq fell 0.9 per cent (2,765) and the SPI was off 0.5 per cent (4,424).

Crude fell about 1 per cent on both the WTI and Brent to $96.16 and $116, respectively. Other commodities were also weaker – copper off 0.2 per cent and softs down 0.6 per cent on the CRB.

Otherwise, rates did nothing, the yield on the major T.notes little changed for the session and on pretty tight ranges (3-6bps). The yield on the 2-year was up smalls to 0.36 per cent, the 5-year down smalls to 1.43 per cent and the 10-year up smalls to 2.92 per cent. Australian futures did zip (4 tick range) and sit at 95.7 and 95.11 on the 3s and the 10s.

Remaining forex moves were small, with the Australian dollar unchanged at 1.0600, sterling down 57 pips to 1.6052, euro 37 pips higher at 1.4111 and the yen at 749.07.

That's pretty much it. Not a lot else to mention. Today just watch out for the RBA minutes at 1130 and then tonight we get US housing starts and the German Zew survey.

Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.