Nov 3 was an exciting day for the markets. The whole Greece episodes were becoming a series of dramas. Under the pressure from France and Germany, Greek President Papandreou’s decision of a Greek referendum was seriously questioned, and Greek Finance Minister said yesterday that there would be no referendum. Greece’s next payment is due Dec 15, and EU and IMF both said there will be no bail-out money if the austerity plan is not accepted by Greece.

By the way, Greek 2 year treasury yield shot up to 102%, which basically implies a 100% default. Mathematically, if you invest 100 Euros in Greek 2 year treasury, over 2 years you expect a 400 Euros total return including both principal and interest. Even taking a 50% haircut into consideration, you still get 200 Euros out of the initial 100 Euros investment. Not bad, right? But the risk is Greece might head for a total default, in which case you get nothing.

The European Central Bank (ECB) chief Draghi unexpectedly cut interest rate from 1.5% to 1.25% yesterday. Last time when ECB raised interest rate, the concern was a overheating of Germany. Now apparently the European turmoil is the paramount risk. The European and US stock markets reacted positively to ECB’s interest rate cut and both rallied.     

ECB’s interest rate cut stimulated safe haven demand of gold, as investors reduce their low interest bearing deposits. Gold price rose by nearly 30 dollars yesterday.

A Greek withdraw from referendum will boost market sentiments and reduce safe haven demand of gold. Gold price might fall in the near future. Tonight (Beijing time), the US non-farm employment data is due to release, which will give clue to market directions.

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