Precious Metals Strong on Chinese Trade Data ahead of ECB

Precious metals are constrained in an uneventful trading range with gold trading at 1656.75 moving under 1 dollar as market participants await for cues from the ECB rate decision and policy statement. Markets are also seeking clarity from US Federal Reserve Chairman Ben Bernanke and possibly clarify the speculation surrounding the Federal Reserve’s asset buying program, wherein the recent minutes revealed that some officials intend to end the monetary expansion before this year.

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The European Central Bank’s bond-buying scheme shows the bank’s determination to preserve the euro but will not by itself restore debt spreads to pre-crisis levels, the head of Ireland’s central bank said on Thursday. The European Central Bank is expected to keep interest rates at a record low of 0.75%, refraining from a cut as the euro zone economy shows some signs of stabilizing and inflation still tops its target.

Eco data over the past few days have shown that German Chancellor Angela Merkel’s economic work horse is beginning to show signs of neglect as the ongoing EU crisis begins to pull down growth. As the continent’s growth engine and self-appointed fiscal paragon orders budget cuts for its peers, investors, economists and policy makers are starting to warn Germany is turning a blind eye to its own weaknesses. While Ireland returned to the government bond market successfully now able to raise the necessary funds to operate their government. Ireland looks to be the first nation to emerge from a bailout.

The big market news today is the Chinese trade balance which soared, well above expectations with exports increasing 14% and imports expanding by 6%. Markets are trading on a positive note after the release.
Gold continues to trade slightly below the 1660.00 range with little reaction to this morning’s data. Physical buying interest from Asia supported sentiments as India’s imports have sailed ahead of an expected increase in duties while Asian sales are increasing as jewelers prepare for the wedding season.

Gold holdings  of SPDR gold trust, the largest ETF backed by the precious metal, declined to 1,339.84 tons, as on Jan 8 while silver holdings of ishares silver trust, the largest ETF backed by the metal, increased to 10,112.22 tons, as on Jan 8.

Yesterday, gold declined for a second day as the dollar’s strength sapped demand for an alternative investment, countering signs of rising demand from China. US Dollar Index (DX) gained 0.3 percent due to rise in the risk aversion in the global markets ahead of European Central Bank and bank of England policy meeting scheduled on Thursday and as Spain and Italy conduct first debt sales of the year, disclosing the depth of demand for peripheral euro zone debt. Further, there anticipation of monetary easing by the Bank of Japan to boost the economy also supported an upside in the index. This increased the demand for the low yielding currency that is US Dollar Index.

Silver followed cues from gold and also in response to strong numbers from China as industrial metals are also climbing this morning. Silver is trading at 30.377 adding .0128 cents today.

Article reproduced as originally appeared in  FX Empire

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