Europe's cloudy skies provide wind for Gold's sails

Gold has slipped down slightly after the huge leap it witnessed yesterday, reaching the highest since last December when gold leaped to $1172.60. This surge is due the sudden increase in demand for a safe haven, as fears of the Greek syndrome spreading to other European countries reigns in the markets especially after the credit rating downgrade for Greece to Junk.

Gold spiked yesterday after Standard & Poor's announced further downgrades to Portugal and Greece's credit rating amid pessimistic outlooks. This announcement caused dread among investors, who fear that the Greek crisis will contaminate Europe, from where it will spread throughout the world.

The credit rating downgrades shadows further strain on the ECB and their accepted collateral grades, which in turn deprives the market of the much needed liquidity which have been keen to emerge of the same pit after the global crisis.

Euro slumped against the dollar to the lowest level since last May reaching 1.3185, while the levels are no bottom as it is expected to decline with the progression of the current crisis, leading to expectations that the euro will fall to its lowest mark this year.

Gold has lost 0.40% to reach $1163.75, while silver is trading at $18.1615. Platinum is trading at $1725.15 after gaining 0.40%, whereas palladium rose by 0.40% to $551.25.

Despite the dollar's appreciation, gold also managed to ascend as the demand for the metal surge amid fears in the market, as the metal is widely used as a safe haven against falling confidence in the markets. The previous crisis was a good example of the latter, when gold was among the few commodities recording gains in the worst financial crisis since the great depression.

The Dow Jones lost 1.90% and closed at 10991.99 as global stock markets retreated. The biggest losses were recorded by S&P 500 which declined by 2.34% to 1183.71, the lowest since last February.

We await the FOMC rate decision later today, while we expect the rate to remain within the 0.0%-0.25% range. The Fed is expected to start raising interest rates by the end of the current year, following the developments in the economy that emerged from the recession in the latter months of 2009.

S&P GSCI closed at 536.92 after suffering a heavy loss of 11.94 points, the RJ/CRB in the mean time shook off 5.20 points to close at 273.18.

Gold futures due June ascended 0.25% at 2:59 EST to reach a mark of $1165.100, while silver futures declined by 0.004% to $18.145. Copper futures retreated to $336.050 by 0.65%.