WILL GOLD CREATE THE SAFE HAVEN MAGIC?

                                                  

                                                                                  By Mr. Prithviraj Kothari, MD, RSBL

 

Considering the ongoing Greece crisis, there was a global assumption that gold would rise in a flight to safety- in fact it happened the other way round- it has fallen around two percent this week, around 1.5 percent in June and more than six percent from its May peak of $1,232.50 per ounce.

Gold prices slumped to their lowest since March as back-and-forth developments over Greece’s debt talks are providing an incentive for investors to disassociate with the Eurozone and its currency.
The gold price tested three-and-a-half-month lows on Thursday morning ahead of the release of the monthly US jobs report.

Spot gold was last at $1,165.20/1,166.00 per ounce, down $2.70 on the previous session’s close – earlier it came within 20 cents of matching it’s lowest since March 19 and is heading for its fourth consecutive lower session.


Thursday’s non-farm payrolls report showed that the US created 223,000 new jobs in June against consensus of 231,000, which has lent some support to precious metals towards the back end of the week.

The gold price made modest gains on Friday after US labor market data came in slightly weaker than expected in the previous session, lending support to precious metals.

In the US jobs report on Thursday, released a day early due to Independence Day celebrations the unemployment rate dropped to its lowest since April 2008 at 5.3 percent, a level the US government considers to be ‘full employment’, average hourly earnings were stagnant, missing predicted growth of 0.2 percent.
A negative jobs reports means and slowly progressing economy which in turn no make majority of the market participant believe that interest rate hike by the US Federal Reserve won’t come in soon. 

Apart from the interest rate hike the market is also closely watching al movements regarding the Greek Debt crisis.
Greek Prime Minister Alexis Tsipras’ aggressive decision to exit negotiations and announce a referendum for Sunday seems to be backfiring. German Chancellor Angela Merkel has reportedly put off a decision until the referendum is voted on by the Greek citizens.

A yes vote would display a total lack of confidence in Tsipras and his left wing-coalition party, Syriza, likely resulting in a reelection. A rejection of the creditor’s proposal would continue the months-long impasse and could signal the end for Greece in the bloc.

The tit-for-tat fails to answer why gold remains in a suppressed state, as the yellow metal is historically viewed as a safe haven for investors during periods of uncertainty.

Gold is failing to make anything of its supposed safe-haven qualities this week despite Greece’s grip on Eurozone membership now at its weakest.   Despite the uncertainty and heavy pressure on global equity markets as a result of the situation in Greece, gold is confounding the widely held assumption that it would rise in a flight to safety.  

What this suggests is that investors either do not value gold’s credentials as a safe haven or do not yet regard this situation as a crisis yet – even though the country is going to the polls on Sunday.

The market is focused on Sunday’s referendum on its creditors’ proposed cash-for-reforms deal. Greece requires additional bailout funds of around 50 billion euros until 2018 under the existing bailout conditions, the IMF claimed, cutting its Greek growth prospects for 2015 to zero from 2.5 percent previously.

Opinion polls released as voting ended suggested a slight lead for the "No" vote.
No exit polls were published. The first official results are expected in the coming hours.
The government had urged people to vote "No", while the "Yes" campaign warned that this could see Greece ejected from the eurozone

Usually such crisis renders support to precious metals. But in this case precious metals haven’t received much lift in spite of the ongoing uncertainties. But markets still remain very much focused on the Greek Debt crisis. 

The Greek people will go to the polls on Sunday to decide whether or not to accept its creditors’ apparently final proposals. No talks on debt relief are likely until after the referendum takes place.

Without additional lending, Greece will default on its July 20 repayment to the European Central Bank (ECB) after missing a payment to the International Monetary Fund (IMF) on Tuesday.

This story may help gold on two grounds- a default on its payments in Tuesday and the risk it will exit the Eurozone. Both these results are strengthening safe-haven demand for gold. Moreover, there is a mounting risk that this will start to struggle on the currency bloc and then the global economy, providing another reason for the FOMC to stay its hand over rate rises.




The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”

- Previous blog -
"It's A Greece Game For Gold"
http://riddisiddhibullionsltd.blogspot.in/2015/06/its-greece-game-for-goldrsbl.html