Gold is failing to make anything of its supposed safe-haven qualities despite Greece’s grip on eurozone membership now at its weakest.
Assuming an unlikely last-minute deal with its international creditors is not reached, Greece’s 7.2-billion-euro bailout programme will end, leaving the country with huge debts and few allies.
The country appears set to miss tonight’s deadline for a 1.6-billion-euro payment to the International Monetary Fund, putting it on track for a potentially messy ‘Grexit’.
But despite the uncertainty and heavy pressure on global equity markets, gold has confounded widely held assumptions that it would rise in a flight to safety – it has fallen more than one percent this week, nearly two percent in June and significantly from its May peak of $1,232.50 per ounce.
This suggests that investors either do not value gold’s credentials as a safe haven or do not yet regard this situation as a crisis yet.
“The euro is effectively unchanged – despite the seemingly high likelihood of a Greek default on the IMF payment and gold is only at the bottom of the same range that it has been in for about a month or so,” Mitsubishi precious metals strategist Jonathan Butler told FastMarkets,
“Either the market isn’t pricing in the implications of what is happening and may well do at a later date or the crisis has already been priced in and this is about as good as it gets for gold,” he said.
Any safe-haven bids on gold are likely to prove fleeting outside of a significant escalation of the situation, he added.
The lack of activity in the gold market is evidence that it expects Greece to remain part of the eurozone, Commerzbank’s Carsten Fritsch said. But Marex Spectron’s David Govett disagreed.
“Attempting to link Greece to gold is a serious waste of time. Gold is not a safe haven and proved that once again on Monday,” he said.
“The Greeks can carry on attempting to self-destruct along with the help of the EU and the IMF, but at the end of the day, gold will not be the product to turn to in attempting to guard against European chaos,” he added.
Recent fluctuations in the gold price have predominantly dovetailed with movements in equities. When optimism that a deal could be reached last week peaked, there were large inflows into equity markets, particularly those in Europe. At the same time, gold stepped further from $1,200 while investors embraced risk.
As well, the euro is on course for its best quarterly rise in more than four years, rising over four percent against the dollar despite months of uncertainty over Greece. Historically, gold has an inverse relationship to the dollar; steadiness in the greenback has been replaced in gold in recent months.
On the other hand, investor interest in gold is improving even if this has not yet translated into higher prices. Speculative long positions on Comex in gold have risen, suggesting that sentiment is turning more bullish in the futures market, perhaps driven by the drama in Greece.
The net long fund position in gold jumped 26 percent or 19,391 contracts to 95,114 in the week to June 23 via long accumulation of 11,891 contracts and a drop of 7,500 in short positions.
Interest in gold-backed exchange-traded funds is also growing. In the ETFs monitored by FastMarkets, holdings rose 7.23 tonnes to 1,600.26 tonnes on June 25, the largest daily rise in more than five months, which coincided with heightened uncertainty over Greece.
And while holdings have since dipped back below 1,600 tonnes, fresh inflows are possible – not least of all if, in the event of a Grexit, the Greek people might seek to protect their wealth in a liquid, convertible and portable asset such as gold.
(Editing by Mark Shaw)
The post Gold failing to attract safe-haven flows despite Greek furore appeared first on The Bullion Desk.
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