Mounting fears about sovereign crisis in Greece and contagion to other European countries continue to hurt sentiment. While stabilized, the near-term outlook in the market remains weak and is prone to further selloff. Currently trading at 82.3, the front-month contract of WTI crude oil price plunged to as low as 81.29 earlier on the day. Gold changes little after rising against the tide yesterday.
Downgrades of Greece and Portugal yesterday overshadowed the meeting today between German Chancellor Angela Merkel, the heads of the IMF and ECB officials. Despite hopes that the leaders would announced something positive after the meeting, i.e. approval of a bailout to Greece, investors actually realized there is a long way to go for the deficit problems to be resolved. Therefore, we believe, although short-term spike in the euro may occur in case of an on-time approval of loans, the currency will remain under pressure in the long-term.
Fiscal problems in the 16-nation Eurozone have also overshadowed the FOMC meeting today. The Fed will likely keep the policy rate unchanged at 0-0.25% and reiterate to maintain interest rates at 'exceptionally low levels' for 'an extended period'. The stance is warranted. While US economic outlook has shown pronounced improvement since the last meeting, especially in consumer spending and housing market, employment situation remained vulnerable while inflationary pressure was stagnant. That said we expect the Fed will slightly upgrade its assessment on economic outlook - using more upbeat wordings in describing economic outlook.
VIX, or commonly known as fear index, closed at 22.81, the highest level since February 2010, yesterday. The close relationship between crude oil price and risk appetite suggests we may see oil price weaken further if more negative news emerges.
Gold's performance in recent days has reinforced our views that investors have been treating it as a safe haven against fiat currencies. Demand for gold increased in various areas. SPDR, the biggest gold ETF, reported an increase of +195.7K oz of holdings on Monday, followed by another 19.58K oz on Tuesday. These were the first increases since April 9. Coins demand was also robust yesterday.
Liquidation continues for a second day in other members of the precious metal complex. After losing -1.03% Tuesday, silver falls another -0.8% today. PGMs got hurt even more severely with platinum losing -2% and palladium sliding most than -4% these 2 days. The selloffs are understandable as the rally since March has driven platinum and palladium +9% and +27% higher respectively. A meaningful correction is indeed healthy for PGMs' long-term price outlook.
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