Gold prices buoyed by breakdown in Greek talks

Otmane El Rhazi from The Bullion Desk.

Gold prices increased as failed Greek talks have raised concerns of an impending exit from the bloc.

Gold for August delivery on the Comex division of the New York Mercantile Exchange rose $5.80 to close at $1,179.0 per ounce. Trade ranged from $1,173.20 to $1,187.60.

The Greek tragedy reached an impasse over the weekend as talks fell apart between the country and its creditors. In response to the failed negotiations, the European Central Bank (ECB) refused to increase lending rates to Greek banks – increasing the odds of a bank run.

Now the Greek people will decide their future in the bloc in a referendum. A rejection of further pension cuts could set the stage for a Greek exit from the bloc – the so-called Grexit. An unprecedented – for an advanced economy – technical default could have far-reaching consequences for national economies.

The country must make a repayment of 1.5 billion euros to the International Monetary Fund by tomorrow, with IMF managing director Christine Lagarde stating that no extensions will be provided. The country owes 9.7 billion euros to the IMF this year and 6.6 billion euros to the ECB in July and August alone.

Even with the bearish outlook for the eurozone and global equity markets, gold saw little movement upwards, raising questions of the physical demand for the yellow-metal.

“Investors are simply not that interested in gold at present and physical demand is weak.” FastMarkets head of research William Adams said. “We are surprised how weak the performance of gold has been today, given the escalation of the Greece issue.”

Elsewhere, the People’s Bank of China cut the one-year lending rate by 25 basis points to 4.85 percent – its fourth cut since November – and lowered the amount of reserves certain banks are required to hold by 50 basis points. It also cut the one-year deposit rate rate by 25 basis points to 2.0 percent.

In US equities, the Dow Jones industrial average and S&P were down 1.6 percent and 1.7 percent respectively, while the dollar was 0.8 percent weaker at $1.1250 against the euro.

In today’s data, Spanish CPI came in better than expected at 0.1 percent, with US pending home sales month-over-month in May up 0.9 percent, off forecasts of 1.3 percent.

As for the other precious metals, Comex silver for July delivery was down 5.5 cents at $15.680 per ounce. Trade has ranged from $15.635 to $15.995.

Platinum futures for July delivery on the Nymex fell $0.20 at $1,080.50 per ounce, while the most-actively traded palladium contract was at $666.90, down $11.70.

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