Risk Aversion Moves Pass Gold

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This morning gold continued to be pressured.  It is becoming evident that despite a savings of 100billion euros by hiking tax and spending cuts, Spain will not be able to narrow the budget gap. A prolonged delay by Rajoy for seeking a bailout and Merkel pressurizing Samaras for strict austerity, the EUR came under stress and thereby taking gold along side drive.

Japan led Asian equities to a sharp fall after the aluminum giant Alcoa’s net result bent down by $143 million and demand forecast for the metal was downsized to 6% from 7% earlier.

Later today, gold will remain under pressure as the EU debt crisis will remain in the forefront.

 This morning the Chinese central bank injected fresh liquidity into China’s financial system ($41 billion) via a daily operation, in an effort to stimulate economic growth. Asian stocks rallied on the China news.

Meantime, European Union finance ministers ended their meeting in Luxembourg while working on a plan for EU bank supervision. Reports said little progress is being made. Spain has yet to ask for formal EU bailout assistance, even though European Central Bank president Draghi said Tuesday the ECB is ready to implement its bond buying program should Spain as for assistance

Eco data today may also forecast US MBA mortgage application would have increased which might support the dollar. Although the market dynamics seems bearish for gold, short term fundamentals are favoring it and not letting it to go down by a greater extent despite dollar strengthens. Weak growth forecast and strong investment demand may limit the downside for gold.

Yesterday, gold fell for the third consecutive session, as a stern warning by the International Monetary Fund on global growth and worries about a slowing Chinese economy reduced bullion’s appeal as an inflation hedge. Gold holdings  of SPDR gold trust, the largest ETF backed by the precious metal, increased to 1,340.52 tons, as on Oct. 9. Silver holdings of iShares silver trust, the largest ETF backed by the metal, declined to 9,920.18 tons, as on Oct, 2.

South African truck drivers will return to work, after employers agreed to raise wages by at least 10%, as gold miners were fired for being part of an unauthorized stoppage.

Based on growth forecasts and worried in the EU over the ongoing, never ending debt crisis and bailouts, markets are once again returning to risk aversion mode.  The gold bulls are disappointed their precious yellow metal did not see good safe-haven demand surface Tuesday. However, it seems that the gold market only sees safe-haven demand occur if there is more anxiety in the market place than what was seen Tuesday. At present the USD is the benefactor of the move to safety, trading up against the euro.

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About: FX Empire Analyst - Barry Norman

Barry produces a private Daily Market Review newsletter that is distributed around the globe to over 25,000 subscribers and recently published a book on Options Trading that is available from amazon.com

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