Gold futures prices have climbed today as Greece’s pro-bailout party leads the poll ahead of June election raising hopes of Greece remaining under the Euro area. The Euro however knocked down once again near a two year low against the dollar after the Spanish bond yield shored to 6.53% (10-year bond) and thereby driving the risk premium to the Euro area high of 515 basis points over the German bonds.
This would have reignited fears that the area’s fourth largest economy may face the debt crisis. Asian equities therefore are wavering between gains and losses as the rising Spanish yield added worries about the European restructuring plans. Spain could use its public money to recapitalize its fragile lenders. This could further lift the country’s debt and the efforts will be more difficult to pay off the arrears amid surging borrowing cost. Euro therefore is likely to exhibit a significant downside risk. So, we cannot rule out Gold following the same direction despite we saw some refuge in gold causing it to move high diverging from its correlation with the Euro in recent times. Reports today may also show the US home price index and manufacturing is improving and that may support the dollar during the evening which will be another pressurizing factor for gold’s price. Nevertheless, lower margin requirement by CME will be effective from today’s end of the business day. Hence, this correction could be a prompting factor for investors to buy at lower levels. So, bargain buying may support the metal to grow.
Silver futures prices are also trading at a positive note . As discussed in gold’s outlook, concerns are now shifting from Greece to Spain. Notably, the risk premium for Spanish bonds over the safe have German bonds rose to the Euro area high of 515 basis points. This would have raised the concern for Spanish failure in recapitalization plan.
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They are expected to use the public money to do the same but this could further lift the country’s debt and the efforts will be more difficult to pay off the arrears amid surging borrowing cost. Hence, the Euro exhibits to a significant downside risk which may impact silver negatively. However, silver is in backwardation which may lift the future prices to have the parity with spot. The Asian equities at present are hovering between gains and losses as fresh worries reignited from the concern discussed above. Hence, silver may remain volatile today as the data scheduled from US today evening may be supportive for silver in terms of a rising manufacturing index.
Today should be an interesting trading day, thin on eco data, but news flows should keep the markets hopping. US markets were closed yesterday for the long holiday, as US investors have been out of the scene since noon on Friday this will be their first time to react to ongoing EU problems, and many investors either withdrew from the markets are positioned themselves before the holidays.