Gold gains evaporate after Greek rejection

In the Lead: “Graeco-Teutonic Wrestling”

Practically every news poll conducted over the past few days concluded that Greece and its private creditors might reach an agreement this week (perhaps even today) and that following such a handshake between the parties the country would commence discussions for a second, €145 billion bailout. Alas, things ran into a bit of trouble on the “conceptual” side of the bailout issue as Greece flat-out rejected a call for “others” (read: Germany, mostly) to have a say-so over its budgetary decisions down the road.

Greek officials have termed such control as being tantamount to their country giving up its sovereignty. Thus, the enthusiasm that helped propel gold to a seven-week high late last week and pushed the US dollar lower as investors embraced risk was dealt a bit of a setback this morning. The CFTC reported that hedge funds augmented their bullish bets on commodities to the highest level in sixty days in the wake of the Fed’s indication that it might extend low interest rates into 2014. However, after the Fed effect wore off and after Europe showed that all is not yet well, the “risk-off” sentiment appeared to define the start of the trading week and it helped drag European bank shares lower along with crude oil and base metals as well. Germany’s Finance Minister continued the (verbal) Graeco-Teutonic wrestling match with a fresh round of anxiety-inducing statements that basically said that Greece may not be granted a further bailout.

The Sydney Morning Herald’s Jessica Irvine sums the European situation up as follows: “So what is going on in Europe? Essentially an experiment by 17 nations to adopt a single currency and single central bank, the European Central Bank, is being sorely tested by the profligate ways of some member countries. When, in 2009, it was revealed that the [Greek] government's annual budget deficit was double what lenders to the government had previously been told, the rot set in. Investors in Greek government bonds — essentially hedge funds, European and Greek banks — began to reassess the riskiness of their investments and became much more reluctant to lend any more. If they did, it was at exorbitant rates. This central cancer in the heart of the euro financial system remains the main focus of efforts to bring about a lasting financial peace.”

With risk being relegated to the back shelf, spot precious metals dealings opened solidly lower across the board after gold experienced its largest decline in one month and touched lows just under the $1,715 mark overnight. The initial bid-side quote in New York came in at $1,725 while silver dropped 60 cents to the $33.39 level. Gold bullish percentages had swelled from 8% to over 83% in just a handful of trading sessions as spec funds got very excited about the prospects of a eurozone resolution to the seemingly interminable crisis. Just how excited such players got was evident in the 29 tonnes’ worth of new speculative long positions that were added last week in the market according to the latest report by the CFTC.

However, the Aden Forecast, operator of the Gold Charts R Us service noted it its latest missive that “Despite continued economic turmoil in Europe, gold continues to move at its own pace. It hasn’t been sought out by investors as a safe haven, at least not since its rise to record highs in September when the Greece debacle officially broke out. Since then, gold has been moving as a commodity, a risk asset, and with positive economic news rather than fear. Gold´s double top formed during the August and September highs [around $1,900] will continue to put downward pressure on gold. If gold can break above these levels, we´ll see renewed strength within gold´s mega-bull market. Nonetheless, gold could resist below that level for some time. We´ll be looking to protect profits along the way, but always keep some of our position in case of a breakout.”

The same level of speculative enthusiasm as was noted in the CFTC report on gold specs was not quite on display in the silver market’s positioning report, where, albeit some growth in longs has occurred over the past month, the overall tenor still reflects an apparent lack of confidence in the ability of the white metal to stage further sharp advances. That situation is of course once again resulting in out-of-touch analysis pointing to a plethora of culprits that includes anything but the silver market’s upside-down fundamentals and/or its being dominated by speculative fund activity. The CFTC, GFMS, and the CPM Group have all been taken to task for what ails silver, in a desperate attempt to stoke investor interest in the volatile commodity while misinforming them.

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