Gold’s reaction to Greek election and note on continuing conflict in Ukraine

I’ve posted a longish commentary on Mineweb.com  looking at gold’s reaction to the Syriza win in the Greek elections.  It rose initially and then fell back more than $20 at one time.  Click on Gold turbulent on Greek aftermath to read the full article.  It comments that the Greek election result fallout will likely create significant waves in the gold market looking ahead – while there’s always the Ukraine to spice things up further….

Happy reading – Lawrie Williams

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Gold breaches $1300 – but beware potential headwinds

Gold is teetering on making a significant breakthrough through the $1300 level but there could also be some adverse factors which could bring it back down again.  Another post submitted to Mineweb.com for publication on that site.

Lawrie Williams

While gold breached the $1300 level in overnight trading last night this is obviously way too early to call this the start of a consistent gold price uptrend, although it is obviously a very encouraging start to the year for gold bulls recently enhanced by the Swiss national Bank’s decision to drop the Swiss franc’s peg to the Euro.  The question now facing us is whether or not a sustained breakthrough can be achieved.  At the time of writing the price had fallen back into the high $1290s but was again testing the $1300 level.

The European Central Bank (ECB) is widely anticipated to announce that it is to implement a Quantitative Easing programme and buy government bonds to try and help stabilise the Eurozone economy at its meeting tomorrow.  But apart from some kind of knee-jerk reaction when the decision to do so, or kick the can further down the road, is announced we don’t see this having any serious price impact given many of these factors have already been taken into account in the recent gold price advance anyway.  Either way the Eurozone continues to have significant problems.

Greek elections come up on January 25th.  Opinion poll figures suggest the outcome is probably still too close to call, but there is a real chance that the anti-austerity, and anti-EU Syriza party may well win – but whether it might win by a sufficient majority to hold power on its own is much more uncertain.  The latest opinion polls put Syriza as gaining more ground and now ahead by between 4 and 6.5%, but whether this lead is sufficient to give it an outright majority should it win – even with the extra 50 seats in parliament given to the winning party to help it form a government under the Greek system – is far less certain.  Pundits put it a few seats short of an outright majority should this be the case.  While Greek public opinion appears to support many of Syriza’s proposals, particularly those in cutting back the current austerity programmes and reneging on the country’s debt, it also appears to favour remaining in the Eurozone and worries about that may prompt a last minute swing to the longer-established political groups and yet deliver victory to the incumbent New Democracy party and its allies.

What is particularly significant about the Greek elections, though, is that if Syriza does win it could send shockwaves through the whole of the Eurozone.  Many countries have seen the rise of ‘alternative’ political parties – not least in the UK (UKIP) and France (Front National). Britain’s highly regarded Economist Intelligence Unit points to the rise of these alternative ‘populist’ parties as having the potential to create substantial changes to voting patterns – it also cites Denmark, Finland, Spain, Sweden, Germany and Ireland as having spawned political parties which could lead to unpredictable results in their next electoral polls.  A Syriza victory would likely give a significant boost to these other populist options and potentially lead to major political instability throughout Europe and the break-up of the single currency, if not the EU itself.

Political instability is, of course, manna for the gold bulls as people rush to buy the precious metal as providing some form of stability as it virtually always has in the past.

Taken with continuing strife in the Ukraine, with major potential still for destabilising escalation which could spread to other former Soviet countries, and the huge political and military impact of fundamentalist Islamic groups in the Middle East with potential to spread to North Africa, and now also in West Africa with Boko Haram, the world is beginning to look increasingly fragmented – all positive for gold.

But there is near-term downside risk for gold too, as pointed out in the latest Precious Metals Weekly newsletter from specialist analysts, Metals Focus. The group believes that the recent positive factors are all temporary and expect that the upturn in gold will eventually lose its momentum.

Looking beyond the positive euphoria of the past few weeks, Metals Focus sees three major headwinds develop for gold, likely in the second half of the quarter. First, it is likely that US interest rate expectations will return with a potentially adverse impact on  gold in North America in particular. Second, Eurozone concerns should probably wane. Third, the current strength of physical demand, fuelled by pre-Chinese New Year buying, will eventually subside.  Should these three factors indeed concur, the consultancy believes that investor sentiment towards gold will quickly evaporate. They stress that their field research so far suggests little conviction by institutional players that there is a genuine change in trend for the price and that recent positioning favouring gold seems to be mostly opportunistic rather than strategic.

So, as usual, the path of the gold price is perhaps impossible to call with so much depending on often unpredictable geopolitical events to give it the occasional upwards or downwards spurt.  The fact that the first three weeks of the current year have seen a plethora of events and market activities which have largely benefited gold so far does suggest that we are going to see a turbulent year ahead which will likely provide, at various stages, both upwards and downwards pressures on precious metals prices.  Where this will leave them in 12-months time is anybody’s guess although we would err on the positive in our own predictions.

Chasing the 2015 Black Swans

What happens if Putin turns off the gas or the Euro starts to collapse, or other potential Black Swan events. An analysis of some of the changes and dangers for the global economy in 2015 and a view that gold remains the best currency for a time of uncertainty.

I would commend everyone to read the New Year prediction letter from Black Swan plc’s Richard Poulden linked at the end of this article. It is possibly a controversial piece, but also enlightening in its detailed look at the rise of the BRICs and Chinese driven multinational development funds which could usurp the positions of the USA, the IMF and the World Bank.

Richard introduced the piece in an email thus:

“I attach the usual view of politics and economics for 2014 as history and a few predictions for 2015 from the crystal ball. I would urge you to read this on the screen if you are still able to do so, unless you live in the EU. In the latter case you should save it up, print it, burn it and then gather round the glowing embers to warm yourselves if you impose further sanctions on Russia and Putin turns off the gas.”

It is also worth reading Richard’s previous year end letters on blackswanplc.com .  As is the case with many such prognostications, some of his past predictions have been remarkably accurate, others rather further off the mark, but always his views have been forthright and enlightening and should hold a serious place in analysis of the global economy and of gold.

As he has been for the past three years, he remains bullish on gold but recognises that some of his earlier prognostications were a little premature although he hasn’t been one to predict a runaway gold price. This time around he reckons that ultimately gold is the best currency for a time of uncertainty, and he still “remains committed to gold as a way of hedging against the massive market uncertainties that have built up since 2009 and the inflation which will in the end follow QE.”

To read the latest Black Swan 2015 New Year letter, click on this link – you will find it an interesting, and well worthwhile, read.

Re-evaluation of dollar strength equalling gold weakness

By Julian Phillips

Review of yesterday’s gold and silver market activity and trends in gold and silver prices.

New York closed yesterday at $1,218.90 up $13.40 as the euro continued to fall. Gold retreated to $1,214.10 with the euro at $1.1866 ahead of London’s opening. The Fix saw the gold price set at $1,213.75 up $2.75 and in the euro, at €1,023.83 up €6.525 while the euro was another half of a cent weaker than yesterday at $1.1855. Ahead of New York’s opening gold was trading in London at $1,213.40 and in the euro at €1,024.61.

The silver price closed at $16.53 up 33 cents. Ahead of New York’s opening it was trading at $16.42.

There were sales of 2.987 tonnes of gold from the SPDR gold ETF and sales of 1.25 tonnes from the Gold Trust yesterday. The holdings of the SPDR gold ETF are at 707.821 and at 159.90 tonnes in the Gold Trust.  U.S. gold investors were clearly loath to trust the move upwards of gold in the dollar.  Certainly, if gold retains its gains, there will be a re-evaluation of the view that dollar strength means gold weakness. Gold has shown more gold strength and is changing resistance into support above $1,200 and €1,000.

Asian demand and short covering are contributing to the rises and with a little more strength in gold in the dollar a new uptrend will have been established.

Today is the day when we may hear that the Eurozone is in deflation. If today’s reports do not show that, it is expected that next month’s numbers will. The debate in Europe continues around whether Q.E. will promote growth as interest rates are already at record lows. Despite the economic weakness in the Eurozone structural flaws on this front are not being addressed. The possibility of Greece and the U.K. leaving the Eurozone reflects the disunity in the zone. With the different nations strongly retaining their nationalism after millenniums of doing so, we cannot see these structures giving way to anywhere near the unity seen in the U.S.A. Hence 2015 does not bode well for the Eurozone on the economic front and the fall in the euro is likely to continue to the lower end of our 2014 forecast.

The oil price continues to fall and is now just about below $50 for Brent and well below it for WTI. We expect more falls to come still. Again an old superficial link between oil and gold is being destroyed as oil continues to collapse yet gold rises.  It is as though people are watching in disbelief and looking around to see what ramifications will come from the oil price collapse. Is it really positive for growth? Is it realistic to see deflation in falling oil prices? A clear lack of understanding is apparent, but with gold rising, the initial impact is proving positive for gold

The silver price is now proving as vigorous on the rise as it did on the fall. Even so it still looks oversold relative to gold, to us.

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