Metals decline as pessimism returns to control the market
Gold slumped today after starting the session in Asia, affected by the pessimism which returned to dominate markets ahead of the final parliamentary vote from Greece on the new round of austerity measures. In addition pessimism was also backed by the disagreement between Germany and France over the plan to heal the debt crisis.
Gold started the session at $1640.47 an ounce and recorded the highest at $1644.86 and the lowest at $1607.27, and is currently hovering around $1615.05 per one ounce, extending the losses incurred in the past three sessions.
As we can see pessimism spread in the market today and forced investors to loose their risk appetite, which supported the low yield U.S. dollar to gain the most against other major currencies as demand for the currency surged since investors tend to avert risk, which forced more downside pressures on commodities and metals to trade lower.
Europe remains the main focus in the market ahead of the finance ministers' meeting in Brussels tomorrow and also the European leaders' meeting on October 23, where all eyes are looking forward on the meetings with hopes that lawmakers in Europe will be able to come up with a final plan to aid the euro area and overcome the debt crisis.
However, the disagreement seen between the French President, Nicolas Sarkozy and the German Chancellor, Angela Merkel is over the mechanism of how to beat the debt crisis, where the European Central Bank along with Germany rejects using their balance sheets to support the 440 billion euros of the European Financial Stability Facility, which raised more tensions in the market, especially after Merkel discouraging comments suggested that European leaders will not provide a final cure to the debt crisis on the October 23 summit.
On the other hand, the Greek Prime Minister, George Papandreou faces a final vote from the Parliament today on the expanded austerity measures, noting that Papandreou was able to win a preliminary vote of confidence yesterday. The expanded austerity measures comprise of tax raises, pensions and wages cuts, and a plan to suspend more than 30,000 state workers in addition to provisions to break the collective pay-bargaining power of Greek Unions.
Greece needs to pass these measures through the Parliament today in order to meet budget targets and become eligible to obtain the sixth tranche of 2010's bailout package and also to deserve the second rescue package as European leaders agreed on July 21.
Silver also lost value today after opening the session in Asia at $31.15 per ounce, extending the losses recorded in the past session. The metal set the highest at $31.24 and the lowest at $30.42, and trades now around $30.42 per ounce.
We expect metals to remain volatile and fluctuate heavily during the session today, awaiting the jobless claims figures and the housing data from the world's largest economy, but in general, metals are negatively biased and could close in the New York session with losses in case pessimism continued to dominate the market and powered further dollar gains.