Eurozone’s is still a long one and fraught with difficulties and obstacles

Gold made some solid gains early of last week over uncertainty about the Eurozone after Chancellor Merkel outlined the proposed Greek referendum on this country’s continued membership of the Eurozone. However, price activity has since stalled, even after Greece’s Prime Minster Papendreou cancelled the referendum. Attention is now on today’s vote of confidence in the Greek Parliament, which Papendreou contends will be enough of a mandate to push ahead with the proposed austerity plans.

With the major opposition party declaring their support for the confidence motion, it seems a successful vote of confidence will be passed. Nevertheless, the path to a satisfactory resolution of the Eurozone’s is still a long one and fraught with difficulties and obstacles. The longer the Eurozone’s woes continue and the greater the uncertainty (as provoked by, for example, this referendum), the greater the volatility and possible short-term downside for all commodities, including gold. The main impetus for this would be a drying up of liquidity in Eurozone money markets if this region’s banks come under severe pressure because of the Eurozone sovereign debt market.

Today’s US nonfarm payrolls might be able to shift focus away from the Eurozone for a while. The market expects an increase of 95k during October, slightly lower than September's surprise increase of 103k. Our G10 analyst foresees the data being only slightly firmer than expectations and therefore prompting not much of a market reaction. Similarly, the conclusion of the
G20 summit today is unlikely to spark any major market moves.

Gold support is at $1,731 and $1,704. Resistance is $1,777 and $1,795. Silver