247Bull.com Editor: Markets are still focused on the US fiscal cliff. However even if Republicans and Democrats are unable to reach an agreement and the automatic spending cuts and tax hikes come into effect, the US will still add at least $400 billion to its $16.2 trillion national debt tab in 2013. Meanwhile, Greece is pushing ahead with a bond buyback program which amounts to using one credit card to pay off the debt on another.
Spot market gold prices fell back below $1715 an ounce Monday morning in London, more-or-less in line with where they were two weeks ago after failing to hold gains made during Asian trading.
“Gold is still following its long term uptrend from 2008 lows,” say technical analysts at Scotiabank, “with support from the uptrend at $1632.”
Silver fell back to around $33.50 an ounce, also in line with last week’s close, while stocks edged higher and commodities were broadly flat.
Euro gold prices meantime came close to one-month lows as the Euro rose to a one-month high against the Dollar after comments from German chancellor Angela Merkel that suggested more Greek debt might eventually be written down.
Greece revealed details Monday of the bond buyback program announced last week, through which the government will buy back its bonds currently trading at a discount to par value.
The government has said it will spend up to €10 billion buying back its own bonds, though it is only prepared to pay up to a maximum percentage of the face value of the debt. Bondholders will compete to get the best price for a given maturity, with Athens setting the minimum price range (depending on bond maturity) at 30.2% to 38.1%, with the maximum range at 32.2% to 40.1%.
“[The prices are] higher than previously published or announced,” says Spyros Politis, chief executive of an Athens-based fund management firm that holds Greek government debt.
“At the moment it looks as if it will be successful, or if they miss the target, they will miss it by a small margin. Anything that reduces the overall debt burden is good.”
Chancellor Merkel meantime said over the weekend that a further write down of Greek debt might be possible if Greece’s budget moves into primary surplus – meaning the government takes in more in revenues than it spends before debt payments are taken into account.
“If Greece one day can rely once again on its own revenue,” Merkel told German newspaper Bild am Sonntag, “without having to borrow, then we’ll have to look at this situation and make an evaluation.”
“[This is] the end of denial,” says ING Groep economist Carsten Brzeski.
“It’s definitely a shift, but on the other hand, it’s obvious [that a write down will be needed].”
Germany’s manufacturing sector saw improved conditions last month compared to a month earlier, although output still appears to have declined, according to purchasing managers index data published by Markit Monday.
Germany’s manufacturing PMI rose from 46.0 in October to 46.2 last month, with a figure below 50 indicating sector contraction.
Manufacturing in the Eurozone as a whole also continued to contract but at a slower rate, last month according to PMI data, while it was a similar story for the UK.
China’s official November PMI meantime rose from 50.2 to 50.6. Similar data for the US are due to be published later today.
Negotiations between Republicans and Democrats over how to avoid the so-called fiscal cliff are set to continue this week, with both sides still in disagreement.
“There’s no path to an agreement that does not involve Republicans acknowledging that rates have to go up for the wealthiest Americans,” US Treasury secretary Timothy Geithner told CBS viewers Sunday.
“The president is asking for $1.6 trillion worth of new revenue over 10 years,” said Republican John Boehner, the House of Representatives speaker.
“[This is] twice as much as he has been asking for in public.”
In New York, the so-called speculative net long position of gold futures and options traders – measured as the difference between bullish and bearish contracts held by noncommercial traders – rose for the third week running in the week ended last Tuesday, Commodity Futures Trading Commission data show.
Overall open interest however fell from a week earlier, while the period does not cover last Wednesday, which saw gold drop 1.5% in a few minutes.
“The market remains sustained by the promise of continued monetary accommodation,” says Standard bank commodities strategist Marc Ground.
“The Fed is not going to respond to stronger-than-expected data with tighter policy immediately and, more importantly, the interest rate markets are not going to expect the Fed to change course. If rates can’t rise materially on strong data the Dollar is unlikely to rise materially.”
The world’s biggest gold exchange traded fund SPDR Gold Shares (GLD) saw its bullion holdings rise to a new record on Friday at 1348.8 tonnes, while November saw the largest monthly sales of gold investment coins by the US Mint since July 2010.
Ben Traynor | BullionVault