The future of the euro zone may be inching closer toward peril, as the week of discussions between EU finance ministers and Greek ministers has not proved fruitful. The talks broke down after Greece rejected the notion of requesting a 6-month extension on its IMF-ECB bailout package, leaving both sides at an impasse. The ECB has until Wednesday to decide whether or not to continue providing emergency loans to individual Greek banks. Although the equities markets hardly batted an eye at the Greek news, gold sank more than $20 in the first hour of trading this morning. The other precious metals followed, slumping deep into the red. Silver was down about 90 cents, back below $16.50/oz, and platinum gave up more than $30. Palladium, which had been resisting the trends of its precious metal cousins lately, also slipped by more than $10.
Yesterday in the Markets
U.S. markets were all closed on Monday for President’s Day. The precious metals were largely flat in international trading.
Factors Affecting Gold Today
Despite the apparent breakdown of the talks between Greece and EU officials, there is still an expectation in the market that the Greece situation will still probably be figured out. Aside from Germany, it doesn’t seem that any of the other EU member countries are willing to let Greece fall out of the currency union for lack of effort. Though Greece would certainly be worse off without the aid of the ECB and the euro as its currency, the EU is likely to suffer gravely from Greece exiting the union–especially considering the hundreds of billions of euros in unpaid debt such a move would entail.
On the Russian front, the truce with Ukraine has already been broken by fresh fighting for the strategic transport hub in Debaltseve, where railways link the rebel-held strongholds in Donetsk and Luhansk. The ceasefire was not two days old before five Ukrainian officers were killed; observers have also reported that neither side seems to be pulling back their heavy artillery. The ongoing war is becoming an increasing concern for the global community, especially in light of how both sides cannot even agree on what’s taking place: Ukraine claims Russia is aiding the separatist rebels, characterizing the insurgents as such, while Russia asserts that it is providing no aid to the rebellion and is accusing Ukraine of inciting its own civil war.
Meantime, the demand for gold from China has been somewhat disappointing in the lead-up to the Lunar New Year, which takes place on Thursday, February 19. This most likely was due to gold’s rally up to $1,300 early in the month, dampening Asian sales due to the steeper prices.
In domestic economic news, the Empire State Manufacturing survey showed a drop in activity last month, while homebuilder confidence registered at a 4-month low. U.S. stock indices opened sharply lower this morning before bouncing back toward unchanged, but don’t expect them to pick up too much momentum today with the disappointing data hanging in the air. The dollar has been trading somewhat unevenly lately, but remains just above 94.0 on the DXY index on Tuesday. Treasury yields have recovered, as the 10-year T-note is currently at 2.05%.
In addition to data for housing starts, industrial production, and PPI for final demand being announced tomorrow, a busy day is capped off by the release of January’s FOMC meeting minutes.