Tuesday, July 7, 2015

Gold Dips Below $1,170 Despite Greek Debt Crisis

Gold Price below $1,170 – On-going Greek Crisis

Price of gold fell recently as the markets anticipated news from euro zone summit speculating whether progress would be made due to the Greek debt crisis, as growing positions in gold underline bearish sentiments towards the precious metal.

In the meantime, China’s foremost stock market closed at 7.4% down the same day and some 18% down from fortnight back since several brokerage houses had tightened their margin trading rules. A data portrayed French and Italian consumer confidence rising though private sector loans from the 19 nation Eurozone increased by only 0.5% annually in May, as stated by the European Central Bank, inspite of 5% growth in the currency union’s broad money supply motivated by the new QE bond buying program of ECB.

 Gold has failed so far to see substantial safe-havenbids due to the on-going Greek crisis and the strength in the dollar has also stopped improvements. Higher prices attempts seem pointless with traders selling into rallies and bringing the prices quickly lower. Spot gold eased 0.1% to $1,168 an ounce by 0630 GMT and the metal increased as much as 0.6% early on Monday followed by Greek rejection on terms of the bailout package.

Investors Concerned – Major Macro Risks

However, it gave up most gains close to 0.2%. On Tuesday, US gold futures dropped to 0.5 percent. The price move indicated the growing evidence that gold cannot hold its weight against the face of market jitters according to an analyst at Phillip Futures, Howie Lee.

He commented that `while that suggest gold has lost some appeal as a safe-haven asset, more importantly it signifies the loss of interest in gold as an investment vehicle. Investor positioning reflected the same, established on US Commodity Futures Trading Commission data on Monday. In the week ending June 30, hedge funds as well as money manager increased their short position to the highest on record.

Non-commercial dealers increased their short positions to a two-year high. While, investors were still net long on gold, a week ago, bullish position fell drastically.However, in terms of transaction, 3 days of strong revenue in the Shanghai Gold Exchange’s domestic kilobar, contract trailed on Friday, by record high volume, with its premium doubling from the previous day to $2.60 per ounce over comparable London quotes.

A London bullion bank had commented that `more people getting involved is a clear sign that investors are concerned about major macro risks – Greece, Europe, China’, adding that the exchange trade trust fund vehicles backed by gold, saw strong inflows on Thursday.

Athens Speculating Proposal for a Deal

The benefit of gold had also been affected by prospects of higher US interest rates later this year which would have increased the demand for the dollar and reduce the appeal of non-interest paying bullion. The weakness in the euro, recently from the Greek crisis has supported the dollar.

Dollar index trading near a one month high was reached on Monday and according to a Sydney based bullion trader, focus was on the euro zone meeting to take place with any Greek debt deal is likely to send gold prices below $1,150.Athens is speculating in bringing a proposal for a deal to the summit after Germany and France informed Greece on Monday, to come up with thoughtful proposals for the purpose of restarting financial aid talks.

Edward Meir, an INTL FCStone analyst stated that `any movement towards an agreement would probably mean that gold’s staying power at current levels will prove to be short-lived’.


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