Gold prices dropped below $1710 an ounce Monday morning in London, below where they ended last week, after failing to hold onto gains made in Asian trading. Silver prices dropped below $31.80 an ounce, also down from Friday’s close.
“Gold has been trading lower as it follows the US Dollar appreciation,” says Bayram Dincer, analyst at LGT Capital Management in Switzerland. “Gold is still range-bound, lacking any upside drivers above $1725 an ounce. The lower range of $1700 is perceived as a good support.”
“Market focus switches to this week’s US non-farm payrolls data [on Friday],” says a note from Barclays Capital, which cites $1698 as a support level for gold prices.
US core personal consumption expenditure data for September, a key inflation measure followed by the Federal Reserve, were published this morning, showing a slight rise in PCE inflation to 1.7%.
Over in India, traditionally the world’s biggest source of private gold demand, the Rupee fell to a five-week low against the Dollar Monday, pushing up the local price of gold.
Dussehra is a ten-day festival celebrated around India – this year it started on October 24th. Dussehra is centered around Lord Rama’s victory over the ten-headed demon king Ravana. The day also marks the victory of Goddess Durga over the demons Mahishasur.
“[There are] a few stray deals are there in the market,” one Mumbai importer told newswire Reuters, “[but] we haven’t seen big volumes yet compared to last week.”
The Reserve Bank of India raised its wholesale price inflation forecast for 2012-13 to 7.7% Monday, up from 7.3%. The central bank also cut its projection for India’s growth rate from 6.5% to 5.7%.
India’s finance minister P. Chidambaram meantime set a target of 3% for the government budget deficit by 2017 as part of a five-year plan of economic reforms announce Monday.
“[Chidambaram’s timing] suggests growing political pressure on the RBI to cut [interest] rates,” says a note from Nomura.
In Europe, Greece’s public sector creditors, which include the European Central Bank, should take losses on their holdings of Greek government debt, according to a draft report from the so-called ‘troika’ of lenders – the ECB, European Commission and International Monetary Fund – reported by German magazine Der Spiegel.
A restructuring of Greek debt back in February saw losses imposed on private sector bondholders. The ECB said it would forego any profits on maturing bonds bought below par in the market, but did not take losses as part of that deal.
“For the ECB, forgiving debt isn’t possible because it would be equivalent to indirect state financing,” ECB Governing Council member and Austrian central bank governor Ewald Nowotny said today.
German finance minister Wolfgang Schaeuble rejected the idea Sunday, describing it as unrealistic. Schaeuble has proposed creating a so-called ‘currency commissioner’ by extending the powers of the European Commissioner for Economic and Monetary Affairs to include a veto over national budgets.
“I explicitly support this proposal,” ECB president Mario Draghi said in an interview published by Der Spiegel Sunday. “If we want to restore confidence in the Eurozone, countries will have to transfer part of their sovereignty to the European level.”
In Madrid meantime Spanish prime minister Mariano Rajoy met with Italian prime minister Mario Monti Monday, three days after Monti told reporters that a Spanish bailout request “would make market speculation less aggressive”.
A formal bailout is a precondition of the ECB’s Outright Monetary Transactions program unveiled last month, which would see the central bank buy distressed sovereign debt on the secondary market.
“Rajoy is very much following his own route now,” says Gilles Moec, London-based co-chief European economist at Deutsche Bank. “Rajoy was probably pressed by Monti in August to accept a pre-emptive [bailout] …it would have made things so much smoother in Europe and for Italy as well.”
Italy sold €8 billion of six-month Treasury bills Monday, at a yield of 1.347% – down from 1.503% last month, and the lowest since March.
In the UK, mortgage approvals rose to a four-month high in September, according to figures published by the Bank of England this morning.