Gold started the week with a small gain but volatility could kick into high gear later this week if there are new Greek headlines or perhaps following the release of the Federal Reserve’s policy statement on Wednesday.
Gold for August delivery on the Comex division of the New York Mercantile Exchange was last up $1.10 at $1,180.30 per ounce. Trade has ranged from $1,171.90 to $1,185.90.
Despite another meeting in Brussels over the weekend, a deal on Greece has not been reached. Talks between the country and its creditors broke up after less than an hour, once again raising concerns of Athens being unable to repay 1.6 billion euros owed to the International Monetary Fund by the end of this month.
The forthcoming eurogroup meeting on June 18 is now being proposed as the next opportunity for negotiations.
“We remain neutral on gold here, as we think it is frankly difficult to know how the gold market will react to a likely Greek default,” INTL FCStone’s Edward Meir said. “On the currency side, the reaction could range for the euro to either rally strongly on the news (bullish for gold) or sell off sharply (bearish for gold).”
He pegged the former as the most likely because “investors will conclude that Greece will finally be cut off from recurring rounds of bailouts and the markets may also sense that the ramifications of a default will be relatively ring-fenced given that most of Greece’s debts are held by quasi-government organizations”.
“Nevertheless, we are not there yet, and so the best course of action is to watch things from the sidelines for a little while longer,” Meir added.
In wider markets this morning, the euro was 0.41 percent weaker at 1.1221 against the dollar, while Germany’s DAX and France’s CAC-40 were down 1.79 percent and 1.61 percent respectively.
On the data side today, the EU April trade balance showed a surplus of 24.3 billion euros against a forecast 20.3 billion euros. US figures later include metals-sensitive industrial production and capacity utilisation, as well as the NAHB housing index.
Later this week, the Federal Open Market Committee will release its June policy statement. The US central bank is not expected to raise interest rates at this meeting but it could lay the foundation for action later this year.
“Most of the market expects that the trigger will be pulled in September given growing evidence that the US economy is picking up steam,” said Meir, noting that retail sales rose by a higher-than-expected 1.2 percent last week after an upwardly revised 0.2-percent gain in April.
In gold-specific data, Comex gold shorts increased by 2.5 million ounces last week, while 800,000 ounces of longs were liquidated, reducing the net positioning to 8.35 million ounces.
“Over the last three weeks, gold net length has declined by a total of 5.71 million ounces or 41 percent with the move dominated by shorts,” UBS analyst Edel Tully noted. “That gold gross shorts are relatively elevated and that overall positioning is leaner should help limit any downside potential on the back of FOMC risks this week.”
As for the other precious metals, Comex silver for July delivery was up 11 cents at $15.935 per ounce. Trade has ranged from $15.810 to $16.080.
Platinum futures for July delivery on the Nymex were down $12.50 at $1,084.30 per ounce, while the most actively traded palladium contract was at $736.50 per ounce, down $1.65.
(Additional reporting by Martin Hayes, editing by Mark Shaw)
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