The Lisbon Factor

Although it should not have come as a surprise to the world financial community, there seems to have been a bit of shock and awe created by the news that Portugal's Espirito Santo Bank conglomerate was missing debt payments. An audit in May shouted the warning, but it largely went unheeded.

The greater fear - the one driving gold and silver prices higher today - is that this is a symptom of something deeper amiss in the European banking system, which has not put its component banks through the same rigorous "stress tests" that U.S. and other banking systems have undergone. This is not to say the Europeans have done nothing, but their measures were not as strict as here in the United States.

The situation particularly revives worries that the weak sisters of Portugal, Spain, Greece and Italy maybe be in for some rough sledding even as Europe's growth rate continent wide is not showing much in the way of strong growth.

Further, since debt is spread around the world, this big stumble on the part of the Portuguese is being viewed as a possible harbinger of systemic shock to the world financial community.

Naturally, gold and silver are viewed as havens - really stores of value - in this kind of environment.

The effect is magnified because bond yields are so low that gold and silver, which of course have no guaranteed yield, are viewed as a good risk for the money that is fleeing equities that were upended by today's news about Espirito.

The Fed's minutes released yesterday have been fully chewed and digested and most analysts are saying that they believe Chairwoman Yellen's lead about rock bottom interest rates. (Good for them and for precious metals bulls.)

There is also no discounting the escalating conflict between Israel and Palestinians in Gaza. The exchange of rocket fire between the two sides rang some alarm bells in a Europe already jittery about the news out of Lisbon.

Finally, gold ETF's are finally regaining traction on Wall Street and the other bourses. They are also beginning to purchase gold assets.

As always, wishing you good trading,