Gold and Silver React to Greece and Spain

Prices have changed very little from prior closing after the Spanish bond yield climbed to a record  level of 7.13%, casting a dim shadow over the European economic outlook.

 Asian markets retreated for the same reason and increased  the probability of the fourth nation  and one of the largest economies in the EU to seek for another bailout. Spain had initially sought a bailout of 1000bn euro to rescue its banks only, but now needs to have its overall debt restructured. 

Speculators are therefore eyeing the G-20 meeting as the focus now have shifted to Spain due to rising borrowing cost.

As expected, the pro-bailout party  The New Democracy win in Greece failed to stop the threat of contagion. The euro remained under significant threat of downside.

The threat of the situation should keep gold under pressure for the day. Although ambiguity over the market stance is not letting the metal fall either. As the Greek coalition talks move into the second day with Germany’s Merkel offering no flexibility on their emergency loan, the euro will continue to weaken today as economic sentiment and worries continue. Therefore, gold may come under pressure during the day.

A forecasted increase in US housing starts and building permits may support the dollar index, also keeping  gold under strain for the day. The G-20 outcome which is expected to include the  approval of a emergency loan and an  increase in IMF’s loan may support the market sentiment. Hence, gold may again find itself in a rigid range.

Silver futures prices are also quoting higher at the at present moment. But the early gains for the day may not sustain as the relief rally has failed to stop the spread of Greece contagion, raising the Spanish borrowing cost to the Euro area highest. An announcement is expected that  the nation seeking an international bailout and that would be a threat for euro. This announcement and the size of the request might increase market volatility and more markets back to risk aversion mode. This is therefore  a negative factor for the metal as well.

From the eco calendar, reports today might show weakening economic sentiment and a hazard to current situation. Therefore, silver may come under pressure also, an increase in US housing starts and building permits may support the dollar index, pushing silver to a downside.

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