Gold and silver tossed around by nonfarm payrolls and Greek default action...
Recorded Friday 9 March 2012
Transcript from 9 March 2012, written by Ben Traynor
Friday was an odd day for gold, which fell sharply following the release of slightly better than expected US nonfarm payroll data. Gold then recovered its losses shortly after the announcement by ratings agency Fitch that it was placing Greece in Restricted Default, less than 24 hours after Athens announced that the vast majority of its private sector creditors have agreed to a bond swap.
Athens confirmed on Thursday that it plans to activate collective action clauses to force the remaining handful to go along with the deal. Fitch's announcement came while the International Swaps and Derivatives Association was considering whether the use of collective action clauses constitutes a credit event – and therefore whether it should trigger payments on credit default swaps held by some investors as a hedge against Greek bonds.
Fitch has now become the third and final major ratings agency to declare that some form of default has occurred.
Friday's rally back above $1700 an ounce for gold took it more-or-less back to where it started the week. Gold also ended up pretty much where it would have been had the trend begun on Tuesday continued uninterrupted.
Silver's price action was similar to gold's on Friday. There was however one difference. By the time London closed, silver had not managed to get back to last week's close.
China, the world's biggest gold consumer during the final months of 2011, began the week by cutting its official growth target from 8% to 7.5%. The rest of the week brought several signs of Chinese economic slowdown, including falling inflation, slower industrial production growth, and slower retail sales growth.
There was also news that China's gold imports from Hong Kong, widely seen as a proxy for overall imports, fell 15% in January compared to the previous month. Much of this though is likely to be the result of stockpiles being run down during Lunar New year.
The European Central Bank and the Bank of England both left monetary policy unchanged at their meetings this week. All eyes will now be on the Federal Reserve decision next Tuesday. The Fed will consider the latest inflation data, which become public next Friday. By this time next week, we should get a sense of whether policymakers as a whole are beginning to grow more hawkish, or whether they will continue to err on the side of easy monetary conditions.
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