Spain Weighs on Gold and the Euro

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Spain Weighs on Gold and the Euro

Spain Weighs on Gold and the Euro

Gold prices tumbled 0.5 percent on the back of weak global sentiments taking cues from unfavorable jobs data of US economy. Further, strength in the Dollar Index also exerted downside pressure on the gold prices.  Further, reports that the Chinese government might not provide big stimulus after observing positive industrial production and retail sales data from the nation weighed on the gold prices. 

Gold futures fell due to weakness in stock markets and uncertainty over the commitment of Germany and France to battle the eurozone debt crisis prompted the bullion market to consolidate gains after its recent rally.

Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, declined to 1,333.89 tons, as on Oct. 15. Silver holdings of iShares silver trust, the largest ETF backed by the metal, increased to 9,888.55 tons, as on Oct, 18. The dollar index, which measures the US unit against a basket of six major currencies, rose to 79.356 from 79.022 in North American trade late Wednesday.

European leaders early on Friday, agreed to have a new supervisor for eurozone banks up and running next year, a step that will pave the way for the bloc’s bailout fund to pump capital directly into banks throughout the single currency area. As the EU Summit draws to an end, closing speeches and statements are due sometime today. Traders are expecting announcements on Spain, Greece, Iran and Cyprus. It is beginning to look like Spain will not request a bailout at this time, which will affect the euro and gold prices today.

The euro is also staying at a weak province as ratio of the Spanish bad loans increased for 17th consecutive month to a record 10.5% of total lending. Asian equities are trading mostly at a feeble note after Chinese data dashed hopes for further easing. Going ahead, gold seems to stay weak as the EU summit is underway. Although Greece was approved for a two years of timeline to meet the austerity need for their international aid, lenders will still be reviewing the country’s situation. But with unemployment staying at the highest we don’t think buying time would be helping Greece to come out from the problem amid continued strike by the workers. Overall, the euro seems to remain under pressure and hence gold too. Reports today might show the US existing home sales are falling. As the mortgage applications fell and new home sales improved along with housing starts, home buyers may not be eyeing for an old house. German PPI may also retreat a bit.

Although with the above said, it will be the news and statements from the EU Summit that will be the prime market making factor today, than followed by US data. If housing is positive, we might see some big action.

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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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