Gold up on Greek crisis – but gains limited

As Greece closes banks and stock market and implements capital controls, the gold price has moved up but seemingly by less than anticipated given the magnitude of the crisis. Julian Phillips’ latest analysis.

New York closed at $1,174.10 up $1.00. Asia took it up $6 and London then pulled it back to $1,177. The dollar was 2 cents weaker at $1.1017 and the dollar Index was higher at 95.69 up from 95.10.  The LBMA gold price was set this morning at $1,176.50 up $2.10. The euro equivalent was €1,064.71 up €16.75. Ahead of New York’s opening, gold was trading in London at $1,180.00 and in the euro at €1,056.87.

The silver price fell to $15.80 down 7 cents in New York. Ahead of New York’s opening it was trading at $15.87.

After hours, Greece announced that it will keep the banks closed for a week ahead of a referendum on Sunday. We expect the Greek payments system to come to a halt and Greece’s economy to struggle to stay functioning properly. This can only be sustained for a short time before the damage becomes uncontainable. There is little doubt that Greece will be in default on Wednesday and wait for the results of the referendum before doing anything more. Until the direction forward is clearly given by the Greek electorate, we do not expect the banks to open. Capital Controls are now in position with no capital allowed to be moved out of Greece and only €60 a day can be withdrawn from ATMs.

Over the weekend the euro fell two cents but is trying to recover through $1.11 now. We see intervention in the markets today in Europe while attempts are made to calm them. Such intervention may last the week, until the referendum results impact on the markets. We are in no doubt that intervention will only be a little oil on troubled waters as, first Asian equity markets responded negatively to be followed by global equity markets move down to contain risk levels. No matter how much intervention is seen in global markets we are in a global situation where turmoil and uncertainty reigns. Italy holds €39 billion of Greek debt.

The gold price ran up to $1,180 before London opened, but has yet to really react to the Greek situation. We see the gold and silver prices reacting only after the ‘ripple’ moves out of the E.U. to the euro exchange rate and to global markets, fully. The full reaction to the weekend’s news on Greece will not be felt until next week. If the referendum says no and Greece leaves the E.U. then we will see the full impact. If Greece says yes, then it may no longer qualify as a member of the E.U. and be forced to exit. It seems there is an 85% chance of a “Grexit”. Then we will have the full impact affecting gold.

Of lesser importance but symptomatic of global debt consequences, Puerto Rico has announced it cannot pay its debts. It only has debt of $72 billion and is likely to enter Chapter 9 bankruptcy. How long are record debt levels sustainable across the world?

On Friday 1.789 tonnes of gold were sold from the SPDR gold ETF, but nothing from the Gold Trust.  The holdings of the SPDR gold ETF are at 711.439 tonnes and at 167.79 tonnes in the Gold Trust.

 

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

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