Morning Market Update Feb 25

February 25th, 2013 by

The markets today have their eyes on the Italian elections, which hold great portents for the future of the Euro single currency. Silvio Berlusconi, run out of power in a corruption scandal, is making a strong bid to return as prime minister on a platform of rejecting the austerity programs that were the terms of assistance from the ECB and Germany. The main opposition is a center-left coalition between Pierre Luigi Bersoni’s party and Mario Monti (who led the outgoing caretaker government installed to halt the financial collapse of the country.)

The euro is up from its six-week low versus the dollar as the dollar weakens, but the euro gains are dampened by the uncertainty around the Italian election. The British pound is hitting multi-month lows versus the euro and the dollar, a slide precipitated by Moodys downgrading the U.K.’s debt.

The yen hit a 33-month low against the dollar, and the Nikkei is at a 4.5-year high as prospects for massive quantitative easing in Japan increase. Chinese and Hong Kong stocks snap a two-day losing streak with gains on Monday, as the Shanghai Gold Exchange continues to see extreme amounts of gold being purchased by China. Approximately 23 tonnes of gold was traded Monday.

India saw a spike in gold purchases despite higher import taxes, as the stronger rupee brought the local price of gold down to its lowest levels in six months.

In the U.S., the dollar is lower, and oil is higher on short covering after hitting a six-week low on Friday. These two factors are helping precious metals, as gold flirts with the $1,590 level and silver ponders a run at $29.00. A bit of safe haven demand from Europe as well as the higher than normal physical demand in Asia is supporting prices.

Wall St. is looking forward to Fed Chairman Ben Bernanke’s testimony before Congress Tuesday and Wednesday on the state of the U.S. economy. Reassurances that large scale quantitative easing will continue will be supportive of gold. Morgan Stanley’s latest report states the belief that gold is “oversold” right now, and any demand for gold will be long-term, fueled by concerns over continued monetary easing, currency debasement and inflation.

The Commodities Futures Trading Commission reported that gold longs decreased and shorts increased last week. Analysts caution that if Bernanke’s testimony is sufficiently “dovish,” it could catch out a lot of shorts on gold and lead to a short-covering bump upwards.

In other news, the IMF reported that Russia’s central bank bought 400,000 ounces of gold in January. Turkey, Kazakhstan, and Azerbajan’s central banks also purchased gold.

 

by David Peterson