Comex Gold Futures Prices declined after the ECB announcements yesterday. U.S. Equity Markets fell for a fourth day and Spanish bonds tumbled after the ECB – European Central Bank President Mario Draghi failed to take necessary action & reassure investors, he was ready to take immediate steps to support the economy. Treasuries gained, while the Euro and Commodity Markets declined. ECB kept the benchmark interest rate on hold at 0.75%. The Bank of England held its key rate at 0.5%. S&P 500 Index slid 0.7% to 1,365, bringing its weekly loss to 1.5%. Spain’s IBEX 35 fell 5.2%, FTSEMIB fell 4.65%, the Euro weakened 0.4% to $1.2182 & Spanish 10-year yields advanced 43 basis points to 7.16%.
The markets did not expect the ECB to cut rates, but did expect very strongly that the central bank would implement a fresh & significant monetary stimulus plan, also as per the expectations built up after Draghi’s high assurances at London last week. “We won’t go beyond our mandate on bond buys, but will use all measures needed to achieve objectives”, said Draghi yesterday. “It is up to governments to give ESM a banking license, current ESM design doesn’t allow it as counterparty”.
Financial markets and politicians had ratcheted up pressure on the ECB to act after Draghi pledged last week to do “whatever it takes” to save a Euro battered for almost 3 years by spiraling bond yields in countries from Spain to Greece. The Bundesbank reiterated last week that it opposes further purchases of sovereign debt by the ECB, as they blur the line between fiscal and monetary policy.
The lack of action from ECB this week stands in stark contrast with economic assessments, assurances given earlier. The Gold Futures Markets have had several expectations, have seen too many assurances but very little getting converted into serious action & so the mild downside response to yesterday’s letdown, as also was the slight enthusiastic response by Gold Futures to Draghi’s strong comments in London last week. Seems like Draghi promised something which he was not authorized to do. The same has been on each appearance by the Fed Chairman Bernanke. Bernanke too has always kept the door to QE3 open but has nevertheless, stopped short of providing any clues to the timing of moving in the big announcement. He has continued to use past language saying the Federal Open Market Committee (FOMC) stands ready to act, if necessary.
Comex Gold Futures October Prices slipped to $1584.2 from the day’s high of $1616 & Comex Silver Futures September Prices declined to $26.88 from the day’s high of $27.78. Gold Prices at the MCX Gold trading saw a decline in October Gold Futures from a high of Rs. 30139 to Rs. 29955 yesterday. Commodity Markets September Futures for MCX Silver trading also extended losses and fell to Rs. 52818 from the day’s high of Rs. 53519. Gold & Silver prices in the Indian markets remained lesser affected by the slump seen in the International markets due to the INR – Indian Rupee’s decline against the US$ of around 0.55% yesterday.
The undertone of the ECB and Fed meetings this week is that it appears quantitative easing measures by the U.S. and EU will surely be coming soon. The key US Non-farm payrolls component of the jobs report is expected today. Gold Futures may respond favorably to the same.
South Korea said it bought 16 metric tons of Gold in July, lifting its reserves to 70.4 tons. Gold reserves still account for just 0.9% of the bank’s total currency reserves, so there is still potential for buying additional Gold. South Korea bought a total of 40 tons of Gold Bullion last year alone. The biggest reported Gold purchases this year were in March, when central banks bought 76.5 tons & then in May, when the official sector purchased 19.3 tons. Central Bank purchases have supplied the much important flooring to Gold Futures Prices.
World’s largest futures market, the CME Group Inc announced decline in second quarter profit and plans to cut margins for Comex Silver Futures again this year. CME said it’s second-quarter profit fell 18% from a year earlier as interest rates near zero reduced trading in the company’s biggest contract. CME Group plans to cut margins for Silver Futures for the third time since February to help boost trading interest, as stagnant prices sapped investor appetite. Silver Trading may get the necessary boost on the same in the near future.
Draghi yesterday announced the ECB is working on a plan & will join forces with governments to buy sovereign bonds in sufficient quantities to ease the region’s debt crisis and then took the unusual step of naming Weidmann of Germany’s Bundesbank as the only policy maker to object to the proposal. While the move would ratchet up the ECB’s response to Europe’s debt crisis, it risks isolating the German central bank, potentially undermining the effectiveness of the new measures. The Euro dropped yesterday, with the standoff between Draghi and Weidmann adding to uncertainty around the latest effort to tame a debt crisis that’s threatening the survival of the single currency. Weidmann must now decide whether to acquiesce to a new bond program or dig his heels in. Two German policy makers have already quit the ECB’s Governing Council over bond buying. Draghi said new purchases in the secondary market would only complement buying by Europe’s rescue fund in the primary market, to which strict conditionality is attached. ECB officials are working on the plan and details will be fleshed out in coming weeks, reported Bloomberg.
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