Focus is still on Greece

At the beginning of the new trading week, the focus in precious metal markets is likely on Greece. After more than 85% of holders of Greek government bonds issued under Greek law accepted the offer of a debt swap, the Greece government activated the collective action clause. Late last Friday, the International Swap Dealers Association decided that this action would be a credit event, which triggers payments from credit default swaps. Normally, this should not be negative for the precious metals as this decision should have been expected. However, it can not be ruled out that stock markets react again negative, especially in Asian and European trading, and drag the precious metals lower.

Last week, precious metals prices came under pressure at the start of the week. The major reason was a drop in stock markets after China revised down the GDP forecast to 7.5%. However, the markets focused only on the headline in the media and fully ignored that the Chinese government also announced to take measures to promote domestic consumption. Also the uncertainty over the result of the Greek debt swap offer weighed on the markets. However, as it became clear ahead of the dead line that Greece would reach the required volume of debt swaps, stock markets as well as crude oil prices recovered, and thus, also precious metal prices moved up again. However, only gold managed to end the week in the black.

A negative factor was the US dollar, which strengthened further against the euro but also other major currencies. The euro initially weakened on the uncertainty about the Greek debt swap. However, on Thursday, the euro rallied against the US dollar on two factors. The first factor was the acceptance of the Greek debt swap offer. The second factor was the ECB. The council kept the refinancing rate unchanged. But more importantly, at the press conference, ECB president Draghi dampened hopes on further monetary stimulus. While the ECB staff projections lowered the forecast for GDP growth, inflation appears to remain a concern for some council members. But all the gains of the euro were given back the next day following the release of the US labor market report. The number of new jobs created exceeded again the consensus forecast of Wall Street economists. Thus, remaining hopes for QE3 vanished further. Some commentators at Bloomberg TV already talked about a Fed rate hike. While this is definitively far too early, the outlook for no further monetary stimulus is currently sufficient to support the US dollar. But as the ECB is probably also not going to provide any further expansionary monetary impulse, the upside for the US dollar appears to be capped.

After the plunge in the preceding week, it should not come as a surprise that the recent CFTC report on the “Commitment of Traders” shows that large speculators massively reduced long positions in the gold future. However, they have also closed short positions. Nevertheless, at the week ending March 6, they had lowered the net long position still by almost 30,000 contracts to 163,265 contracts. In silver, the large speculators have reduced their net long position by almost 7,000 contracts to 23,192 contracts. The holdings of the SPDR Gold Trust ETF remained unchanged this week. As precious metals recovered after the dead line of the latest CoT-report, we would not be surprised, if net long positions held by large speculators did not decline further.

Precious metals have stabilized in the second half of last week. However, they are not yet out of the woods. The technical indicators are still bearish. Thus, the consolidation is likely to continue for the time being.