IBT: Gold Rises on Escalated Sovereign Concerns. Oil Gains on Pipeline Shutdown
The market focus this week is shifted to the Eurozone from the US. Apart from resurface of sovereign concerns as several peripheral countries hold bond auctions, the ECB will be meeting for monetary decision Thursday. The euro remained under pressure after a week's selloff and continued trading at 3-month lows against the US dollar and Japanese yen. Gold rebounded after recording the deepest decline since May last week. Currently trading at 1375, the benchmark Comex contract plummeted to 1352.7, the lowest level since November 29, before closing at 1368.9.
Demand for safe-haven assets surged as debt crisis in the European periphery escalated. Crude oil price also rebounded sharply as the Trans-Alaska Pipeline System was closed on January 8. The system carries above 15% of US crude oil output.
Speculations that Portugal will follow Greece and Ireland in seeking bailout from EU/IMF after a German weekly magazine Der Spiegel said Germany and France will pressure Portugal to accept bailout from EU/IMF as soon as possible to prevent contagion of sovereign crisis Spain and Belgium. The comments were denied by a Portuguese government spokesman and a German finance ministry spokesman. However, if history repeats itself, government denial of such 'rumor' is a prelude for a request for a bailout.
Portugal, Spain and Italy are scheduled to sell debt this week. Portugal will sell 2014 and 2020 bonds on January 12, followed by Italy's sale of 2014 bonds and Spain's auction of 2016 debt on January 13. Yields on these 3 countries surged last week. If responses of these auctions are weaker-than-expected, market concerns will be elevated and weighed on the euro further. Gold may rise further to trade in tandem with the US dollar as investors seek safe-haven assets.
Oil climbed for the first time in 3 days amid supply-tightening concerns as the Trans-Alaska Pipeline System was closed down after a leak. Many oil companies are forced to suspend as much as 95% of production in the North Slope area. The rebound in oil futures today has factored in this incident. However, the impact may be short-lived as the pipeline will be repaired quickly. A fall back to 88 cannot be ruled out after pipeline resumes operation.
The ECB will hold the main refinancing rate unchanged at 1% at Thursday's meeting. It would be interesting to see President Trichet's comments on sovereign crisis and the central bank's commitments on bond purchases.
