Gold and Silver after EU inaction

The Asian equities have retreated by 0.2 to 0.7 percent after early morning Chinese HSBC flash PMIdeclined more than expectation. The Chinese FDI investments have also retreated for the sixth straight month in April and metal inventories have witness record stockpiling with weak manufacturing and consumption demand. All these are going to weigh on metals pack and may restrict gains in today’s session. Further, from Europe the non-official meeting between EU leaders did not achieve any result, boosting risk aversion sentiment. The European central bank has formed a work team to prepare for Greece leaving the euro zone.

The EU non-official meeting failed to reach any agreement, and European leaders will unlikely reach a consensus at the EU summit-taking place next month, so Greece will be forced out of the euro zone. International financial markets should be shocked. Global financial markets may continue to plunge, while the US dollar became a safe haven asset, and commodity and base metal prices should continue to weigh downwards. From the economic data front, the German trade figures along with GDP may improve substantially and may extend slight support to the dwindling metals, however capital investment, PMI and IFO figures may continue to decline due to weak sentiments and slower economic development and may continue to restrict gains in metals.

The Euro-zone PMI numbers are likely to decline after increased concern of the solvency of the region and increased risk from Greece exit and may restrict gains in base metals. The US durable goods ordered may also improve slightly at a slower pace while the weekly jobless claims may continue to increase albeit slowly and may further weaken base metals in the US hours. The Western equities have retreated drastically, may open slightly positive due to profit booking, restricting much falls in metals pack.

However, weak economic developments and slowing PMI numbers coupled with weak equities may continue to support down side in today’s session and hence we recommend initiating short position for the day.  

Gold futures prices continued to seek support after plunging below $1550 and at present are quoting up by 0.75% at the early Globex. The besieged Euro hovered just above the level seen last since July 2010 took the yellow metal and stocks along for the ride. The journey still continues for the Asian equities and the 17-block currency should have pressurized the metal but re-establishment of two rescue funds namely “Euro plus Pact” and a “European semester” would have unleashed the worry of a Greek default. Except this, the meeting offered no clear resolution over the country’s fate as the multiparty clash on Euro bond issue stalled with indication of stricter budget cuts.

The Euro outlook therefore remains bleak as fears of Greek muddle still persist. Amid such scenario market will be eyeing the host of economic releases from the globe anticipating some indication of economic progress. Early morning, the Chinese PMI stayed well below 50, indicating concern for manufacturing which would have stressed the Asian equities.

However, the estimates of German first quarter GDP may prove true due to a sharp jump in Trade balance to 17.4 billion Euros, highest in last one year. German PMI numbers would therefore also indicate progress in manufacturing activities. However, the Euro zone could really end up with poor PMI numbers. From the US, jobless claims may come at a blend as manufacturing sector remained unstable. Therefore, Euro and gold may find little support during the German releases but may not last for longer time.   Said above, the enduring Euro fret may still keep the metal under stress and hence we recommend staying short at higher prices.

Silver futures prices are quoting well above yesterday’s closing at the Globex with some sort of positivity on reestablishment of two rescue funds namely “Euro plus Pact” and a “European semester”. But the summit provided no clear resolution to the wrecked Spanish and Greek condition. Hence, market anxiety still remains for a potential Greek exit and a further weak Euro. Silver therefore is also expected to pare gains as the day progress. As discussed in gold’s outlook, the economic releases from Germany may provide slight support to the Euro and silver price but the recent fall in Chinese PMI to a below 50 mark raise doubt over the economic stability. So, the industrial metal may be under stress. And in evening, the US jobless claims may come at a blend but a probable rise in durable goods orders may support the dollar. 

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