After a see-saw moves yesterday, gold futures prices have now changed a little towards a positive note in electronic trading. The market is having a difficult time with economic releases which are not resilient enough for a sustainable retrieval; they are also not weak enough to call for additional stimulus according to the Fed officials.
Worries are therefore are sidelining market sentiment and are reacting to market news. Report in early morning showed Chinese GDP cooled to three years low at 7.6% from 8.1%, as expected. Asian equities however did not react much as the second largest economy took advance steps by providing easing. Going ahead, the Euro is expected to continue slide against the dollar after Spanish and Italian bond yield crawled higher ahead of Italian bond auction today. The treasury gets ready to offer 5.25billion Euros of bonds that include a new three year issue with 4.5% coupon rate.
Although the new bond traded at 4.8% indicating a likely fall of borrowing cost, the back drop remain unchanged as the German two year bond yield ended at a record level of minus 0.042%. Moreover, Moody’s has cut Italian bond rating from “A3” to “Baa2” with negative outlook and higher funding cost. Euro therefore is still bearing significant risk of down side.
Gold may pare the early gain as Europe and US are yet to face the weakening GDP impact of China and an expected rising yield auction of Italy. Reports from the US may also show PPI has reduced and that may again support the dollar. Yesterdays US unemployment numbers were market neutral. Technically a slight pull back is expected but as discussed above, concerns are still likely to weigh on gold prices.
Silver futures prices on the other had have taken a breather at early trading. Falling Chinese GDP have pressurized the metal at early session. Expect silver to retreat throughout the day as Italy gets ready for 5.2 billion Euros auction today and yield is expected to rise especially German two years yield fell to the record low of minus 0.042% indicating safe haven demand for German bonds rejecting the others and thereby raising peripheral yields.
With the decline in growth, a there is a lower demand for industrial metals and therefore, weakens Silver. Hence silver too is likely to retreat. Nevertheless, technical of silver is suggesting an upper side breakout which might negate our fundamental view. For the time being since Europe remains at the fore front, the gain would be short lived.
Markets will be very reactive to news flow. Caution is advised.