The Sunday Mail
THE gold price fell below US$1 200 Wednesday, as traders weighed the weakening dollar against the prospect that Greece could be forced out of the eurozone if it fails to meet its creditors’ demands.
Prices recovered slightly on Wednesday, but remained at US$1 190 per ounce.
“The trading range has become very tight over the past 10 days and sideways performance like that is drying up liquidity,” said Saxo Bank senior manager Ole Hansen told Reuters.
“If anything, in a day like this, with European markets down, I would be a cautious buyer looking for a potential bid on the back of the weaker dollar.”
Over the past month, the strong US dollar has put pressure on the gold price, but Wednesday morning it shed 0,5 percent of its value, heralding the possibility that the price of gold may soon start to climb.
“We wait to see if the dollar weakens further; if it does, we would expect the metals to pick up,” Fast Markets analyst William Adams said.
Traders have also been following developments in the Greek debt crisis finances. If Greece does not agree to a comprehensive list of reforms by Friday, analysts say the country could take a step closer to exiting the eurozone. If the country is forced out of the joint currency, gold will become an increasingly tempting looking safe haven. However, increased anxiety over Greece’s economy is expected to drive up the gold price after weeks of stagnation. Many investors buy gold in times of political or economic uncertainty, seeing it as a hedge against other assets in turbulent times.
A fortnight ago the gold price moved back above the US$1 200-an-ounce mark in response to news that Athens is preparing to declare a debt default by the end of April.
In February, Frik Els speculated that a Grexit — a Greek exit from the euro — could send gold above US$2 000 an ounce, as investors looked for a safe haven.
While gold is historically positively correlated to the Euro, this correlation tends to break down during periods of ‘safe haven’ inspired buying,” James Steel from HSBC Securities tells The Bullion Desk. “Recent events including Grexit concerns and heightened geopolitical tensions have helped support gold.”
A report on Mining.com examines the relationship between the US dollar, trading at near 12-year highs against the euro, and the price of gold. It makes the case that when the Fed starts to raise interest rates it could “mean more upside for gold than the dollar.”
Referring to the ongoing crisis in Athens, it adds: “This asymmetry may be especially relevant in the event of a shock such as the break-up of the euro.”
According to the Wall Street Journal, Peter Hug, global trading director at Kitco Metals, has already told investors that “this is not the time to cancel your insurance and may be a good time to buy some protection, if you do not have some gold as a diversifier.”
“Greece and what happens next continues to dominate Europe, with euro-gold remaining well supported amid mounting uncertainty over the potential and indeed timing of a Grexit and all the capital controls and other measures that would need to be put in place,” says ICBC Standard Bank analyst Leon Westgate. — www.theweek.co.uk
