Precious metals and gold ETFs continue to trade in a range as the market anxiously awaits a bailout request from Spain.
Pressure continues to mount on Spain, with unemployment rising to 25% in September, the highest level in Spain’s democratic history.
Moody’s, the rating agency downgraded five of Spain’s regions, citing a deterioration in their liquidity positions. Spanish regional governments account for a third of spending, yet only raise a fifth of the nation’s revenue.
It is widely expected that Spain will have to ask for a bailout to continue to support its regions, but is delaying this decision to until Catalonian elections take place on 25th November 2012. Once Spain asks for this bailout, the ECB can start buying Spanish bonds, which may help boost sentiment in the Euro, weaken the US dollar and stimulate renewed demand for precious metals, especially gold.
For the moment, the elevated net long futures position in gold continues to unwind as investors become impatient with the lack of decisive action from Spain.
Better-than-expected Q3 GDP in UK tempers UK QE outlook
Expectations of further rounds of quantitative easing were tempered as the Governor of the Bank of England commented just days before the release of the GDP data that “loose monetary policy today will eventually give way to a tighter stance of policy as the economy recovers.”
Fed remains fully committed to easy monetary policy
Following its policy meeting last week, the Federal Reserve on the reiterated its commitment to undertake additional purchases of MBS if the labor market does not improve substantially.
US data has generally been positive: initial jobless claims fell last week to 369k compared to 392k the previous week; new home sales were up by a strong 5.7% month on month; and Q3 GDP growth of 2% annualized was higher than expected.
However, the Fed has made it clear that it needs the US recovery to be well underway and employment far higher than it is today before considering ratcheting back its easing policies.
Key events to watch this week: US payrolls data
Given the important role employment data plays in the Fed’ policy decision making process, the non-farm payrolls data for October will be closely watched.
Revisions to previous month’s readings will also be scrutinized in this volatile series. US ISM manufacturing and factory orders along with final manufacturing PMI data will help confirm the strength of the industrial cycle.
The market is expecting a 0.4% quarter-on-quarter contraction in Spanish Q3 GDP to be announced this week. A deeper contraction could push the case for more urgency in Spain requesting a bailout.
ETFS Physical Swiss Gold Shares (NYSEArca: SGOL)
