Greece won’t default, but just be ‘in arrears’: Big inflow into GLD

Julian Phillips’ latest take on factors driving the gold markets globally and on the latest political ‘fudge’ over Greek debt

New York closed yesterday at $1,173.10 down $1.30. Asia took it up $2 and London held it there. The dollar was weaker at $1.1217 up from $1.170 and the dollar Index was lower at 95.10 down from 95.44.  The gold price was set this morning at $1,174.40 down only 20 cents. The euro equivalent was €1,047 96 down €3.61. Ahead of New York’s opening, gold was trading in London at $1,174.10 and in the euro at €1,048.40.

The silver price fell to $15.87 down 3 cents in New York. Ahead of New York’s opening it was trading at $15.83.

It now appears that if Greece misses next week’s payment to the I.M.F. they will not have defaulted, but only be “in arrears”, a state allowed by the I.M.F. With no progress in these negotiations and with little evidence of Greece’s ability to pay the due amounts, the structure of the negotiations needs to change. That can only happen if Greece ‘defaults’. Then creditors have to face a reality that they now they have as much of a structural crisis as Greece does. So don’t expect a last minute solution. Rather expect more drama next week. But nothing is certain these days.

Meanwhile, the interest rate differentials between the E.U. and U.S. continue to place upward pressure on the dollar. In the last week, the foreign exchange markets have been loath to respond to this pressure holding the $: € exchange rate around $1.12: €1 through the week. We do see pressure rising and should we be correct in our expectations on Greece, we expect volatility to leap, in foreign exchanges and in global financial markets, next week.

Over in Asia, the picture continues subdued, as is normal for this time of the year. In India, generous rains have kick-started the growing season with farmers being buyers of gold from, at the latest, September onwards.

Chinese demand is robust with premiums over London’s gold price rising with annual demand projected to be higher than the record breaking 2013. There is no reason why this should not happen. Some felt that the Chinese would turn to their equity markets instead of to gold. The average Chinese investor is unlikely to turn away from his traditional love of gold. We note that China experienced hyperinflation in the past and the old generation remembers it well. With the government encouraging investment in gold and the Chinese people responding obediently to the government, gold is unlikely to be abandoned as a bedrock investment. This is why Asian demand will continue to underpin demand for gold.

The U.S. investor in gold has come to life. There were purchases of 7.753 tonnes of gold into the SPDR but none into the Gold Trust on Thursday. The holdings of the SPDR gold ETF (GLD) are at 713.228 tonnes and at 167.79 tonnes in the Gold Trust. This is the first time this year we have seen such a large purchase! Will there be follow through?

Julian D.W. Phillips for the Gold & Silver Forecasters  – www,goldforecaster.com and www.silverforecaster.com

 

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