Gold and Silver Report 13th July 2015

Gold was boosted after Greeks rejected the austerity conditions of a new bailout package, sending the nation into economic uncertainty. Continued uncertainty over a proposed U.S. rate hike also provided a slight late week boost. However, gains were limited by robust dollar earlier in the week, and weak Chinese demand later in the week.

Start of Week Price and Charts snapshot:

Source: bloomberg

Source: NASDAQ

On Monday gold saw small safe-haven gains after Greek voters rejected the terms of a bailout package, deepening the country’s economic uncertainty.^[1] U.S. gold climbed early, nearly 1% – its largest for about two weeks, before a robust U.S. dollar pared gains back down, to 0.3%. On Tuesday, gold fell near a four-month low, while silver sank nearly 7%, as the U.S. dollar rallied against the euro ahead of an emergency summit to discuss Greece’s future in the eurozone.^[2] Gold rose on Wednesday as the U.S. dollar softened, and markets shifted focus to turmoil in Chinese stock markets and the unfolding Greek debt crisis.^[3] On Thursday, gold held steady as the greenback softened after the Federal Reserve’s last meeting maintained a cautious stance. On Friday, gold scaled higher as the euro rose on signs of progress in Greece, making dollar-denominated gold cheaper for other currency buyers.^[4] However, weak physical demand caused by problems in Chinese stocks limited gains.^[5]

Gold is typically an attractive investment in times of economic uncertainty but the Greek crisis largely failed to attract safe haven bids. However, when the Greek referendum rejected conditions of a rescue package from creditors that would have imposed austerity measures, on an already ravaged economy,^[6] the country has landed in uncharted waters; risking a banking collapse. Things were further shaken up when Greek Finance Minister Yanis Varoufakis resigned on Monday, with Prime Minister Tsipras hoping it would help smooth negotiations.^[7] Athens has reconvened and now formally applied for a three-year loan^[8]. Howie Lee noted that “While that suggests gold has lost some appeal as a safe-haven asset, more importantly it signifies the loss of interest in gold as an investment vehicle.”^[9] ActivTrades chief analyst Carlo Alberto de Casa said “A close below $1,157 could trigger further losses to the yearly low of $1,143 and then the $1,130 area.”^[10]

Meanwhile, in recent weeks, the U.S. currency had been boosted by weakness in the euro as uncertainty fluctuates over Greece’s fate,^[11] denting demand by making dollar-denominated gold more expensive for other currency buyers.^[12] However, uncertainty over the timing of a rate hike has been an ongoing factor. San Francisco Fed President John Williams said the Fed will likely raise rates this year, but only when there are firmer signs inflation is headed toward the central bank’s 2% target.^[13]