Gold Market Update 6-20-2015

The big question last week was whether the turnaround in gold prices would continue, or if the downward trend of late May and early June would make a comeback. It’s good news for anyone sitting on a stock of the metal because the spot price, after an uneven start to the week, rose strongly on Wednesday and Thursday to close the period at $1,200.30. That’s a gain of exactly $19 on the week before, far from spectacular but a definite step in the right direction. At this rate it will take a few weeks to get back to where we were in mid-May, but the dropping price seems to have reversed itself and that’s the main thing.
Gold’s recovery has probably been driven by general market uncertainty, prompting investors to look for a safer home for their money. The performance of equities was very mixed last week, with the Dow Jones up overall – but shedding almost half its weekly gains in a sharp drop on Friday – and the FTSE 100 slightly down but appearing to pick up slightly from Wednesday on. Part of this is probably down to the US economy; although the second quarter figures were reasonably good the Fed is still wary, after the abysmal negative growth numbers in Q1, and they look to be holding off on an interest rate rise for now. Oil prices are still low, too, and dropped another few cents last week – WTO is now selling for $59.91 and Brent at just over $63. These prices make a lot of US domestic production economically marginal at best, so immediate prospects aren’t looking bright for producers and the whole train of industries that supply them.
The currency markets have also been unstable all week, especially the dollar/Euro sector. The Euro has been jumping up and down several times a day in response to the latest news about Greece, although it hasn’t made it above $1.14 for weeks now. The hope among currency watchers is that this situation will sort itself out by the end of the month, when Greece either has to make a major payment to the IMF or become the first advanced nation ever to default. A default looks likely, because Athens simply doesn’t have the money, and the likely result is a Greek exit from the Eurozone. That will take the single currency into uncharted waters, and while the smart money is on it rising sharply at the news of Grexit there’s no certainty at all. That’s likely to push gold higher for the rest of June as European investors look for a safe haven.
The global economy is in a very interesting place right now – and interesting doesn’t always mean good. There’s potential – although slight – for the Greek crisis to kick off a renewed financial crash; it all depends on how well the European central bank has insulated the rest of the continent against bad debt. If they’ve done that as badly as they’ve managed everything else gold could get a serious boost over the next two weeks.

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