Gold trending lower despite Greek crisis

In the Lead: “It’s Academic”

Further weakness was manifest in the precious metals’ complex overnight and early this morning as the US dollar was seen approaching the 76 level on the trade-weighted index amid continuing (and aggravating) troubles related to Greece and its debt. A collapse in that country’s government bonds pushed their yields to 30.26% and there was quite a bit of “contagion” on display in other European bond yields and in the premiums for insuring against defaults (Spain, Portugal and Ireland all caught the Greek flu in that sense) in the wake of the worsening situation in Athens.

Greek PM Papandreou failed to secure support for additional austerity measures and his entire Cabinet is now subject to being reorganized. Meanwhile, the country was once again brought to a halt by yesterday’s general strike. Some analysts have labeled the European situation as that continent’s “Lehman Moment.” The euro was hit by its steepest loss since 2009 in the wake of the latest round of difficulties that Greece is experiencing. You know already which currency benefited from that damage…

As the US dollar picked up a fair amount of safe-haven and “risk-off” bids this morning, the metals sank at their opening time in New York. Helping the greenback this morning were news that jobless claims fell by 16,000 in the latest reporting period and that US housing starts climbed by 3.5% in May. Countervailing the positive news was the report that the Fed’s gauge of Philly area manufacturing activity turned negative in June.

This follows a similar development in the Empire State gauge of such activity. There is a school of thought that sees the current rough patch in the US economy as little more than the consequence of the supply-chain disruptions that resulted from the Japanese Sendai quake in March. At any rate, the Dow finally exhibited a modicum of stability this morning, and it managed a 50+ point gain to near the 12,950 level.

Gold was off by $3.40 per ounce and was quoted at a bid price of $1,527.20 while silver lost 45 cents to start the session at $35.36 per troy ounce. The $1,550 and up to $1,570 price neighborhood in gold and the near-$38 to $40 value zone in silver remain overhead resistance targets that must be demolished convincingly in order for bullish tilts to resume in the two metals.

Until such time as that is possibly achieved, the trend remains aimed at lower value ground. Expectations that the Greek crisis would fuel a summer rally in the yellow metal have thus far been unfulfilled and this really ought to be a time for bullion to shine at its brightest, all things considered. More than one source at the IPMI Conference in San Antonio this week posited the possibility that one of the PIIGS countries might need to pledge some of the gold held in reserves to the EBC/IMF in order to secure more time to work their fiscal woes out. Certainly, that would be a better option than a forced sale of bullion in order to raise sorely needed cash.

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