Gold jumps in Asia as investors eye Greek bank holiday, China rate cut

Posted by Trading Advisor on 2:30 PM with No comments
goldex tradingGold prices jumped in Asia on Monday as investors reacted to the prospect of financial turmoil in Greece spilling over to other countries and cuts in interest, deposit and cash reserve ratios by China at the weekend.

Greece's banks and stock exchange are expected to remain closed throughout the week following a recommendation from the country's Financial Stability Council late Sunday, according to some reports.

The move came just hours after the European Central Bank froze Emergency Liquidity Assistance (ELA) support to the country's banks at levels agreed on June 26 - a figure estimated to be around €90 billion.

"The Governing Council is closely monitoring the situation in financial markets and the potential implications for the monetary policy stance and for the balance of risks to price stability in the euro area," the ECB said in a statement. "The Governing Council is determined to use all the instruments available within its mandate."

At the weekend, Greece's parliament approved a move put forth by Prime Minister Alexis Tsipras for a national referendum that will decide the fate of the country's bailout negotiations on July 5.

The poll effectively ended stalled talks in Brussels and likely ensures that Greece will be unable to make a "bundled" €1.55 billion payment to the International Monetary Fund on Tuesday - the same day its current (extended) bailout program expires.

Ahead, Japan reports industrial production with a drop of 0.8% expected month-on-month in May, as well as retail sales, with a 2.3% gain seen in May year-on-year.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, was up 0.83% to 96.40.

At the weekend, the People's Bank of China cut interest rates and its deposit rate to 4.85% and the deposit rate to 2% respectively from Sunday.

The PBoC also announced that it will cut the reserve requirement ratios (RRR) by 50 basis points for commercial banks serving rural areas, agriculture and small businesses.

The PBoC has now cut interest rates four times since November and this year also reduced the amount of cash banks must keep in reserve three times, as well as using other measures to inject liquidity into the market.

The Asian nation is the world’s largest copper consumer, accounting for almost 40% of world consumption last year, and a top importer of gold.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery rose 0.92% to $1,184.00 a troy ounce,.

Also on the Comex, silver futures for September delivery soared 1.14% to $15.948 a troy ounce.

Elsewhere in metals trading, copper for September delivery fell 0.16% to $2.631 a pound.

Last week, Gold fell to a three-week low on Friday before reversing losses as investors continued to monitor developments surrounding talks between Greece and its international creditors, amid mounting fears over a potential debt default.

European finance ministers refused to extend Greece’s bailout beyond June 30, despite Greek requests to extend the program until after the referendum, deepening doubt over Greece’s future in the euro zone.

Expectations of higher U.S. borrowing rates going forward is considered bearish for gold, as the precious metal struggles to compete with yield-bearing assets when rates are on the rise.

In the week ahead, market participants will also be looking ahead to the latest U.S. employment report, due for release one day ahead of schedule on Thursday, for signs of improvement in the labor market, which the Federal Reserve is a key factor in deciding when to start hiking interest rates.

On Monday in the euro zone, Germany and Spain are to release preliminary data on consumer inflation.

Later Monday, the U.S. is to publish a report on pending home sales.