The Conversation (0)
With the parliament of Greece passing the first of two austerity measures, gold prices have been rising with growing investor appetite for risk. Analysts expect the vote to be in favour of the final austerity bill, which might gesture a bullish impact based on a weaker dollar.
With the parliament of Greece passing the first of two austerity measures, gold prices have been rising with growing investor appetite for risk. Analysts expect the vote to be in favour of the final austerity bill, which might gesture a bullish impact based on a weaker dollar. Gold has, over the past three months, been a major beneficiary of the investor anxiety over the triple disaster in Japan, the overall global economic outlook for growth and Greece’s potential to affect the rest of the euro zone economy. The price of gold is on pace to set an eleventh consecutive quarterly gain representing data from the first half of this year.
After Greece moved a step closer to securing international aid, the dollar lost a quarter of a percent against a basket of currencies, as the euro rallied. A short term decline in the dollar would traditionally elevate gold prices since it reduces the marginal cost of buying it for non-U.S. investors; however, this inverse correlation to currency can sometimes decay. In an interview with Reuters, Credit Agricole senior metals analyst Robin Bhar stated “Gold has got to stay supported, however this plays out. The fact is Greece is bankrupt and some restructuring is inevitable. We are going into the summer season…but I can see gold holding and consolidating. With all these issues still to be addressed and what to do with Greece, I can’t see any other way but to remain generally in a broad range.”
Earlier this week, copper climbed based on the news of an agreement by French banks to rollover Greek debt. France introduced a “creative” solution to the economic problems of Greece, suggesting that banks extend the debt for 30 years, potentially alleviating short term concerns and strengthening the struggling economy to avoid insolvency. Copper is set to record a gain for the first month in four, demonstrating strength as a weaker dollar spurs demand for commodities as an alternative investment.
Potential outlook
Many industry analysts believe the European Central Bank will raise interest rates next week to curb inflation after an increase in April. ECB President Jean-Claude Trichet said this week policy makers are in “strong vigilance mode,” signaling higher borrowing costs. An interest rate increase by the bank may further weaken the dollar and could be a catalyst for price appreciation in both industrial and precious metals.
The market will be awaiting two reports on Friday with some potential to affect metal prices. The semi-monthly consumer sentiment report is primarily affected by employment conditions and inflation; however, consumers are also concerned with current geopolitical events and financial context. Investors should be aware of this indicator as it could strengthen or weaken spot price and futures markets, particularly for gold, as a traditional hedge against short term inflationary concerns. The monthly construction spending report is also of interest, particularly for industrial metal investors as it monitors the dollar value of construction activity on public, residential and non-residential projects with data available in inflation-adjusted and nominal dollars. Although there are some reports that suggest overall business activity in the United States expanded last month, economists surveyed by Bloomberg News suggest that the report may indicate manufacturing growth declined.
With The Federal Reserve’s second round of quantitative easing concluding today, its website indicates plans to buy between $4 billion and $5 billion of notes due from December 2016 to June 2018. The purchases will be the last in the central bank’s effort to add $600 billion to the United States economy.
Precious metals group spot price trading range and market comparisons
After increasing for two straight trading sessions spot market gold prices seemed to have found a very short term range declining slightly 0.1 percent to $1,509.20 per troy ounce. The current price trend should demonstrate a quarterly rise for gold in the range of 5.5 percent, compared with declines of 4.8 percent in crude oil, 2.8 percent in emerging equities and 1.4 percent in the S&P 500 over the same duration.
Spot market silver prices appreciated 0.4 percent at $34.90 per troy ounce, which would correspond with a 7 percent quarterly loss, the first decline after nine straight quarterly gains and its worst since the third quarter of 2008, when the global financial crisis was approaching its most intense. In a recent note from Sprott Asset Management, “a 30 percent drop in silver occurred over only four days” cautioning that “We have a very tough time understanding those bearish arguments against silver. We look at the real silver market, and based on the supply and demand data coming from the real, physical markets for silver, the fundamentals are only getting stronger.”
The spot market palladium price has outperformed its precious metal peer group with a 1.4 percent increase for the current trading session; however, the metal is on course for its second straight month of losses. Palladium spot market prices have faced the biggest challenge this year in returns for investors within the category on a year to date basis, declining approximately 5 percent. Platinum declined slightly from the previous session 0.2 percent to the range of $1,720.00 per troy ounce, set for its first quarterly decline in a year, contracting 2.7 percent during the first half of this year.