Gold price looks vulnerable at $1,200; Greek woes bolster dollar

Otmane El Rhazi from The Bullion Desk.

Gold continued its battle with the key psychological $1,200 level on Friday morning although the dollar’s advance may mean that its stay above here proves short-lived.

The spot gold price was last at $1,200.50/1,201.30 per ounce, down around 30 cents on Thursday’s close. It hit its highest in more than two weeks in the previous session at $1,205.30.

The metal has been confined to a very tight $4 intraday range so far – the latest developments in the Greek debt saga are enabling the dollar to pare some of its losses from earlier in the week, which could pressure gold back below $1,200.

Greece has edged closer to an exit from the bloc after another crucial meeting between creditors ended in stalemate. Greece and eurozone leaders will hold an emergency summit on Monday, with the country now just 12 days from defaulting on 1.6 billion euros owed to the IMF should it not unlock the crucial funding that it needs.

“Time is running out, making the scenario of Greek sovereign bankruptcy increasingly realistic. There are now fears that there could be a run on Greek banks, as the banking system would probably cease to function properly in the event of national bankruptcy,” Commerzbank’s Carsten Fritsch said. “This should lend good support to the gold price.”

IMF managing director Christine Lagarde has reaffirmed that there will be no grace period or delay to payments and Greece must pay up by June 30 or face default. Today the European Central Bank is reportedly holding its own emergency meeting to discuss the extension of emergency liquidity assistance to Greece.

But the situation poses a confusing question for the gold market, INTL FCStone’s Ed Meir said.

“We do not know as markets have never experienced a budding default like this before. Although investors seem to be quite complacent about a ‘Grexit’, it is entirely possible that things do not follow the script, in which case the euro could come under pressure and drag gold down with it,” he said.

“Therefore, the $25 gain we saw on Wednesday could easily be reversed, which is why we suspect that the best course of action for the moment is to remain sidelined,” he added.

Still, the dollar is now clawing back some of the post-FOMC losses – it was last at 1.1306 against the euro. Any further strengthening is likely to weigh on gold in the near term.

There is no real data of note due – earlier, German PPI came in short of expectations at 0 percent and the eurozone current account bettered consensus at 22.3 billion euros.

Silver was last down five cents at $16.11/16.16 per ounce while platinum gained $6 to $1,079/1,089 and palladium was up $2 at $716/722.

(Editing by Mark Shaw)

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