Having (at least initially) declined the EU help connected with seizure of 6.75%-9.9% deposits, Cypriots turned to the East, asking the Russians to help them. And Russians have their own demands - securing access to the local resources. Of course the EU is not happy about increased Russian influence and power on Cyprus that would result if the deal between Cyprus and Russia went through.
We now have a particularly interesting situation in which Cyprus will accept help from the lowest bidder. The problem is that the "bids" include multiple areas and the choice will be made between greater international stability (taking EU's help) and perhaps domestic stability (not taking EU's help and avoiding the partial seizure of deposits). Assuming that the deposits in Cyprus belong in large part to the Russian mafia (which is the case, in our opinion), the problem has an additional dimension - you don't expect to rob the mafia without any consequences, especially if the mafia-government link is quite strong. On the other hand, rejecting the EU and taking help from Russia might mean that the Cyprus is forced to leave the EU and join the Russian-Kazakh-Belarusian economic union in the making (which in fact is open to other countries according to Russian Foreign Minister Sergei Lavrov). Maybe they will also put on the table a small naval base on Cyprus offsetting the heightened US presence in the region (see today's President Obama visit to Israel) and at the same time becoming less dependent on the Syrian base of Tartus (first step to give a green light on military intervention?)
Our - rather optimistic - "bet" goes to the solution in which they talk more, set deadlines and move them a few times, and then Cyprus accepts EU's help and EU will agree to lower the "tax", perhaps by taking only a half or third of what is currently demanded.
Whatever the solution is, the situation is likely to remain positive for the precious metals market because all the buzz around it just makes it obvious to everyone that they should have wealth stored at least partially in an asset that is much safer than bank deposits. Gold and silver (especially physical, and especially geographically diversified), should come to many investors' minds.
Banks were ordered to stay shut until next week - the tension will likely rise until that time.
The precious metals moved higher today and most of the move happened in a sharp manner. The good thing is that this time gold rallied along with silver and platinum.
Full speculative long positions are suggested for gold and silver and mining stocks.
Naturally, we suggest remaining in the precious metals market with your long-term investments. In particular, don't let the bearish analyses, declining prices or sideway moves make you sell your long-term precious metals investments. It's a good time to be adding to the long-term gold & silver investments, not a bad one.
As always, we'll keep you updated should our views on the market change. We will continue to send out Market Alerts on a daily basis (except when Premium Updates are posted) at least until the end of March, 2013 and we will send additional Market Alerts whenever appropriate.
Thank you.
Sincerely,
Przemyslaw Radomski, CFA
