Gold, silver slide on European debt woes; Euro tumbles vs. Dollar

Gold and silver are pointing down Thursday after weekly U.S. payroll data showed a higher-than-expected jump and European banks scrambled to raise more capital on renewed credit concerns.

The SPDR Gold ETF (GLD) was most recently sliding by 0.4% and the iShares Silver ETF (SLV) was slipping 0.6% after ADP reported that private-sector payrollsincreased 325,000 in December, led by the service-providing sector and small businesses. Traders look to the data as an advance reading on the U.S. Labor Department’s jobs estimate, which will be released Friday, and includes information on both private- and public-sector payrolls. At the same time, investors discounted the latest report as numbers seemed to be inflated by seasonal issues. As noted in the WSJ’s Real Time Economics blog, the ADP report has a mixed track record compared to the official government data.

Economists are expecting tomorrow’s report to show a strengthening employment picture with overall nonfarm payrolls up around 150,000 in December, compared with 120,000 in November. The unemployment rate is also expected to rise to some 8.7% from 8.6%.

In futures markets, gold for February delivery in New York was most recently down 80 cents to $1,611.90 an ounce. March silver was off by five cents to $29.05 an ounce on the Comex. In euro terms, spot gold was earlier trading at its highest level in three weeks, showing the market “to be living up more to its status as a safe haven again,” said Commerzbank analysts in a note. Analysts and traders closely watch the euro-denominated gold trade as an indicator of trends in the metal itself, rather than movements in the dollar. Precious metals tend to be negatively correlated to the greenback.

The PowerShares U.S. Dollar ETF (UUP) was pointing up 0.8%, poised to advance from yesterday’s 0.6% rise. Ahead of the opening bell in the U.S., theCurrencyShares Euro ETF (FXE) was sliding 0.9% as the euro sank to a 15-month low against the dollar.

Italy’s UniCredit (IT: UCG) offered new shares at a steep discount to current prices as part of a plan to raise $9.7 billion in new capital. The Spanish government said the nation’s banking sector will need to raise around EUR50 billion to deal with toxic bonds. Meanwhile, France saw borrowing costs rise at the 10-year level as it sold $10.3 billion of bonds in a closely-watched auction.

Germany had also seen a drop in demand for its bond issues this week, with demand for its 10-year bonds issued on Wednesday only barely covering what was on offer.

Also, tensions with Iran continued to grow. Reports that European Union leadersagreed in principle to an embargo on Iranian oil imports weighed on precious metals markets.

Demand in Asia continued to show signs of improving. Chinese buying was reported as a particular bright spot ahead of the Lunar New Year on Jan. 23. Indian demand is reportedly recovering as well, after a weak end to 2011 as domestic prices soared.

Despite recent softness in the metal’s price, gold markets remains well-supported, HSBC analyst James Steel told Dow Jones Newswires. He says the bank remains bullish on the yellow metal as a poor global economic outlook and sovereign debt troubles spur fresh demand for bullion as an alternative store of value.

HSBC now expects gold to average $1,850 an ounce this year, down from an earlier forecast of $2,025 an ounce. HSBC has also reduced its average 2013 forecast to $1,800 an ounce, some $50 lower.

“The HSBC economics team has highlighted likely global deflationary pressures due to contractions in the banking industry and deleveraging, which we believe may limit gold advances, and this helps explain the reductions in our forecasts,” Steel said.

“(But) we believe that gold prices will recover in 2012, and we maintain our bullish posture,” he added.

Miners were also pressured in pre-markets. The Market Vectors Gold Miners ETF(GDX) at last glance was sliding 0.1% while its small-cap minded cousinJunior Gold Miners ETF (GDXJ) was off by 1%.

The Institute for Supply Management’s index reading of activity outside the manufacturing sector for December should be released around 10 a.m eastern time. Economists expect the index to rise to 53.3% from 52% in November. – Source: http://blogs.barrons.com

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Posted by Silver Guru on Jan 5 2012. Filed under Silver prices. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry