The Daily Market Report
Gold Recoups This Week’s Losses
09-Mar (USAGOLD) — Gold has traded in a choppy manner, falling in early New York trading after a modestly better than expected nonfarm payrolls report lifted the dollar and stocks. The purported success of the Greek PMI deal may have also diminished the safe-haven appeal of the yellow metal somewhat.
However, these intraday losses were short-lived as news that Fitch downgraded Greece to “selective default” and reports of an Israeli airstrike in Gaza sparked a rebound that saw gold set new highs for the day and threaten the high for the week at 1716.48. A close above the 100-day moving average (1695.66), and more so a higher close on the week (above 1710.50), would offer encouragement to longs for the week ahead. Such action into the close would also likely discourage shorts.
Despite reports of 95% participation in the Greek bond swaps, the euro tumbled back to its low for the week, just below 1.3100 versus the dollar. The Greek cabinet approved activation of the collective action clauses and Fitch downgraded Greece to selective default status. Meanwhile, in the grey market for the new bonds, it appears that the actual haircut for the private bondholders will be closer to 78%. Yields have surged from the get-go with new 2% bonds maturing in Feb 2023 being bid at 19.7% on repayment worries. Basically, the new bonds aren’t even out yet and already there’s ample skepticism about Greece’s ability to pay on them.
Such skepticism is well founded with news that the Greek economy contracted more than expected at the end of last year. The Hellenic Statistical Authority reported today that Q4 GDP fell by 7.5%, rather than the 7% that was initially estimated.
Here in America we’ve started seeing some downward revisions to GDP for this year that are primarily being driven by a surging trade deficit. The January trade deficit jumped to a three year high of $52.6 bln on rising costs for imported energy and food products. At the same time, European demand for our exports fell as their economy teeters on the brink of a new recession. The weaker economic prospects for the US may have prompted the Fed to spur renewed speculation this week about additional quantitative measures.
If the Fed does indeed launch a QE3 down the road, the gold market is likely to react in the same way it did to QE1, QE2 and Operation Twist, by pushing relentlessly higher. When you consider the absolute explosion in the balance sheets of the Fed’s peers — the ECB, BoE, BoJ, among others — it’s reasonable to view gold as being on sale at these prices.
