from Ben Traynor
Friday 9 March 2012, 09:10 EST
Gold and Silver Down on Week, Stocks and Dollar Rally Following Nonfarms Release, Chinese Inflation News "Could See Boost for Gold's Value"
SPOT MARKET gold prices fell by over $20 an ounce within one hour Friday lunchtime in London, while stock markets rallied along with the Dollar immediately following the release of monthly US jobs data.
Dollar gold prices fell over 1% to below $1680 per ounce, while silver prices fell to $33.25 per ounce, while other commodities were relatively flat on the day.
Government bond prices meantime fell along with the Euro Friday morning, after news on Thursday night that Greece's bond swap should go ahead successfully.
The US Bureau of Labor Statistics nonfarm payrolls report revealed Friday that the American economy added 227,000 non-agricultural private sector jobs last month, compared to the analysts' consensus expectation of around 210,000.
The US unemployment rate remained static at 8.3%.
Heading into the weekend, Dollar gold prices were down 1.9% on the week by Friday lunchtime, while silver was down 4.5%.
"It's difficult to see what would make gold push higher," said Citigroup metals research analyst David Wilson Friday, speaking ahead of the nonfarms release.
"[It] seems odd because you would want to be buying gold if Europe is still a big risk and the US isn't but that is not how it's been trading."
Greece secured the biggest sovereign debt restructuring in history last night, after more than 95% of its private sector creditors agreed to a bond swap deal that will see them lose 70-75% on their Greek debt holdings.
Private creditors who did not agree are expected to be compelled to comply with the deal after Athens confirmed it plans to activate retroactively inserted collective action clauses (CACs).
The International Swaps and Derivatives Association's Determinations Committee was meeting Friday lunchtime to decide whether the bond swap, with its CACs, constitutes a credit event, and therefore whether credit default swaps bought as a hedge against Greek bond default should pay out.
"It almost now certainly going to trigger CDS," said Nick Stamenkovic, Edinburgh-based bond strategist at RIA Capital Markets, speaking before the ISDA meeting.
"If this doesn't trigger it, nothing will."
The bond swap should ensure Greece receives its €130 billion second bailout and avoid default when it has to pay maturing bonds on March 20.
Elsewhere in Europe, Spanish unions on Friday voted for a general strike to be held March 29, after negotiations with government on labor reform failed to find a compromise. Spain's government was negotiating to make it easier to fire workers and harder to link salary increases to inflation.
Germany's largest bank Deutsche Bank borrowed up to €10 billion from the European Central Bank at last week's three year longer term refinancing operation (LTRO), Reuters reported Friday. The bank reportedly used the funds for its operations in Spain and Italy.
"It is essential for banks to strengthen their resilience further," said ECB president Mario Draghi Thursday, speaking to reporters after the ECB's Governing Council had announced its decision to hold Eurozone interest rates at a record low of 1%.
"The soundness of banks' balance sheets will be a key factor in facilitating an appropriate provision of credit to the economy."
At the press conference, Draghi "adopted a significantly less dovish tone [on inflation]" says Holger Schmieding, chief economist at Berenberg bank in London.
"[Draghi dropped] anything that could hint at any additional non-standard measure or a further rate cut to come."
"Further rate cuts seem to be off the table," agrees Carsten Brzeski, Brussels-based senior economist at ING Group.
"[However], the new anti-inflation rhetoric is probably rather lip service to soothe the Bundesbank than a serious intention to hike rates anytime soon."
Over in China, the world's biggest gold consumer in the last quarter of 2011, consumer price inflation fell to 3.2% last month – down from 4.5% in January – according to official figures published.
"A lower headline inflation number means that the central bank can continue to be very accommodative, which means printing more money," reckons Jeremy Friesen, Hong Kong-based commodity strategist at Societe Generale.
"The more money it prints versus the gold out there, the more it should raise the value of gold versus that money."
"I believe inflation will again pick up in the second half, because of the monetary easing the Chinese government will adopt now," adds Shen Jianguang, chief economist for Greater China at Mizuho Securities Asia, who also cited recent wage rises in China.
China's central bank last month cut its reserve requirement ratio, which dictates how much money banks have to hold as a proportion of their assets.
"I don't think there's any room for cutting interest rates for China this year," Shen says.
"Last cycle they hiked RRR twelve times, but they only hiked interest rates five times."
Elsewhere in China, industrial production growth slowed to an annual rate of 11.4% last month – down from 12.8% in January – while annual retail sales growth dropped from 18.1% to 14.7% over the same period, official data show.
Earlier this week, data from Hong Kong's government revealed that Chinese gold imports from Hong Kong dropped by 15% between December and January.
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
(c) BullionVault 2011
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