Gold and Silver Report 6 June 2015

The Greek crisis worsened as it became the first developed country to default on an IMF repayment. However, the situation has so far had limited impact on commodities as investors remained wary of safe-haven bids, and due to a stronger US dollar. However, a slightly weaker than expected US jobs report lent some support to the metals at the end of the week.

Start of Week Price and Charts snapshot:

Source: bloomberg

Source: NASDAQ

On Monday, gold jumped after the Greek debt crisis took a turn for the worse over the weekend as bailout talks between the Greek government and foreign lenders broke down over the weekend.^[1] However, gold prices fell on Tuesday despite Greece becoming the first developed country to default on an IMF loan, as investors remained unsure of any long-term safe haven appeal. The default also sunk the euro lower compared to the US dollar, which pressured gold as a stronger greenback makes gold more expensive for overseas currency holders. On Wednesday, gold fell as the US dollar strengthened and hopes for progress in the Greek crisis revived after the country announced it may accept bailout offers if some conditions were changed.^[2] Gold rebounded slightly again on Thursday after US jobs data was slightly weaker than expected, inviting speculation the Federal Reserve may hold off on raising interest rates. The jobs report was closely watched as the Fed previously said it will only raise rates on signs of a sustained economic recovery.^[3]  On Friday, gold prices firmed as the US dollar softened on the back of the jobs report, while investors remained cautious ahead of Greece’s referendum.

The impending Greek slide towards a euro exit carries broad implications for the global financial system. However, the impact on commodities has yet been limited as investors remain cautious. Ronald Leung of Lee Cheong Gold Dealers in Hong Kong noted that “Surprisingly, the safe-haven bids haven’t materialised,” adding “Maybe they will once we see the impact of a Greek default spreading to other countries in Europe and elsewhere”.^[4] Macquarie analyst Matthew Turner said “Everyone says this crisis should be good for gold, but no one has made a convincing case on who should be buying gold … Greeks are going to hold euros.”^[5]

Meanwhile, metals prices have also been restrained due to expectations the Federal Reserve will raise US interest rates this year. Michael Widmer of Bank of America Merrill Lynch said “The gold price is telling you the market is not concerned about Greece” adding: “The [US] dollar is the bigger force at the moment.”^[6] Analysts say any fallout from Greece is expected to be modest in the United States and would not impact the Fed’s likely September rate.^[7]

The Greek government has called a referendum which is now underway, and the market is now watching the it closely. Commerzbank analyst Carsten Fritsch said “It’s not only about the outcome of the referendum, but also about the reaction of the European Central Bank, which could cut the credit levels of its funding to Greece”.