(Kitco News) - Precious metals prices will be dominated by events out of Europe next week, particularly after a monkey wrench was thrown into a deal to get Greece its next tranche of aid.
Prices fell on Friday and were lower on the week. The most-active April gold contract on the Comex division of the New York Mercantile Exchange settled at $1,725.30 an ounce, down 0.86% on the week. March silver settled at $33.604 an ounce, down 0.43% on the week.
In the Kitco News Gold Survey, out of 32 participants, 24 responded this week. Of those 24 participants, 13 see prices up, while seven see prices down, and four are neutral on prices. Market participants include bullion dealers, investment banks, futures traders, money managers and technical chart analysts.
Precious metals, along with most other markets, were caught in a “Greece fire” on Friday as a deal struck to get the country its second bailout appears to have been scuttled by last minute demands from European leaders.
Greece was set to receive its 130 billion euro ($170 billion) aid tranche when eurozone finance ministers said they wanted the Greek parliament to impose a package of cuts and reforms agreed with the EU and the IMF. Also Athens must find a further 325 million Euros in budget cuts by Wednesday, when the eurozone finance ministers meet again.
Greece has a bond payment due March 20 and needs its next aid supplement in order to pay bond holders. The new demands pushed financial market prices down across the board, market watchers said.
“Greece cannot service its huge debt, and there are real fears that a default could endanger Europe's financial stability and even lead to a break-up of the eurozone,” said R.J. O’Brien.
What’s ironic is that many European finance ministers are concerned this new overall plan won’t put Greece on a sustainable growth path, the firm said.
“This latest demand could be the lighting of the fuse that eventually sets off the default ‘bombshell’ that everyone is supposed to be trying to avoid. But there is now more and more talk on the margins in both Brussels and Athens that a Greek default would not be a disaster,” the firm said.
R.J. O’Brien said default is not necessarily what is causing international lenders sleepless nights. Rather, it’s a possible Greek exit of the eurozone. “If that happens then all Greeks - not just the government - will either default on their debts, or - if it is legally feasible - will convert their debts into new drachmas that are likely to lose over half their value against the euro,” they said.
Brown Brothers Harriman analysts said this latest move is fraught with peril. “Eurozone officials are playing a dangerous game, as opposition to austerity in Greece is surely intensifying, as evidenced by the resignation of the Deputy Labor Minister yesterday and by another socialist MP today. The poor Greek economic backdrop only makes it tougher to stick with austerity to meet fiscal targets,” BBH said.
George Gero, vice president with RBC Capital Markets Global Futures, and precious metals strategist, said there are concerns that the continued problems in Europe might push mid-sized and smaller banks to raise cash by selling gold. That’s bearish because it puts more gold supply on the market.
The lack of a plan for Greece also delays any recovery in that region, which could ultimately weigh on the global economy, he said. “The relationships of gold, euro, crude and base metals like copper are beholden to economic recovery which could be impacted by a Greek default,” he said.
The Wednesday meeting of eurozone leaders makes it the most important event for the market next week, Gero said. “All eyes will be on TV screens, newspapers and websites like Kitco News,” he said.
NEW MARGINS TAKE EFFECT MONDAY
The CME Group, which operates the Comex and the Nymex, said late Thursday it will reduce margins for gold, silver and platinum futures, effective Monday.
Gero said normally the reduction in margin would have helped lift prices, but given the change of heart by the eurozone officials, the supportive news regarding margins was diminished.
Gero said the reduction in margin means the exchange feels the volatility that prompted the previous rise in margins has eased somewhat. “Margins have to do with volatility. It’s insurance for the buyer and the seller,” he said.
Source; http://www.kitco.com/reports/KitcoNews20120210DeC_metalsoutlook.html
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