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Julian Phillips’ latest market commentary shows more purchases into the big SPDR gold ETF (after a small sale the previous day) and considers the impact on the gold price of slipping oil prices (again) and the Greek/EU/German impasse.  Something will have to give here sooner rather than later!

New York closed yesterday at $1,265.30 up $4.10. In Asia gold rose to $1,270.6 ahead of London’s opening where it returned to $1,266.6. At the Fix gold was set at $1,263.75 down $17.25 and in the euro, at €1,106.708 down €2.092, while the euro was weaker by nearly 1.5 cents at $1.1419. Ahead of New York’s opening gold was trading in London at $1,262.30 and in the euro at €1,103.94.

There were purchases of 2.986 tonnes of gold into the SPDR gold ETF and a purchase of 0.24 of a tonne into the Gold Trust on Wednesday. The holdings of the SPDR gold ETF remain at 767.929 and at 167.75 tonnes in the Gold Trust.  The tone of U.S. investors into physical gold remains solid. The gold price rose in the U.S. but more so in Asia.

Overnight two events have taken place that could indirectly impact the gold price. The first is the oil price has begun to fall again. We remain aware of Saudi Arabia’s indication that it could fall much lower. We would not be surprised to see an eventual oil price of $35, particularly if Canadian oil swamps the oil market, in an already oversupplied market. The Saudis are taking the line that they are not holding prices down it’s the new boys in town flooding the market. We see this situation lasting for years, not months. Despite gold rising with oil in 1973 we see falling oil prices indirectly helping gold to rise.

The second event is in the Eurozone where the ECB has announced that from February 11th it will not be taking Greek bonds as collateral for funding and likely to be the case going forward in E.U. Q.E. This is an early ploy to put Greece in its place. Germany is likely to follow suit. As we look from a distance at the progress of these re-negotiations we see a major factor on each. The ECB and Germany just cannot afford to see Greece exit. The benefits of the decade and a half of a low euro have left the Eurozone with considerably more than €250 billion in profits and global trade, which they would not have had if the Deutschmark were still in existence. Therefore, faced with the threat of a Greek exit, we see that both the E.C.B. and Germany will make concessions. But they need to believe that Greece will exit before they concede. By playing hardball, Germany and the E.C.B. ensure a weak Greece and a weak euro, too great a benefit to lose! Get ready for the ride!

On the Greek side, they need to be fully prepared to exit the euro and the Eurozone if they want to make real progress. They have already indicated that they will not consider that. We see this as dragging matters out through several dramas to come.

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