Gold Slips over Reduced Safe Haven Appeal

By Leia Michele Toovey- Exclusive to Gold Investing News

Gold prices ended sharply lower on Friday, as the approval of Greece’s austerity package took a huge bite out of the metal’s safe-haven demand. Amplifying the descent was a climb in the greenback and a drop in oil prices. Gold futures dropped to six-week lows Friday, with the most actively traded contract closing at $1,482.50 a troy ounce on the Comex.

In recent months, concerns over the ability of Euro zone members to finance their debt had resulted in investors shunning the equities and turning towards safe-haven gold. Last week, Greece was the focal point in the Euro zone, and the approval of austerity measures relieved the pressure, resulting in investors turning away from the safe-haven metal and instead preferring the equities. As a result, gold closed down Friday and global equities markets rebounded. Greece will receive $17.43 billion from the European Union and International Monetary Fund after ministers approved the fifth tranche of aid from last year’s €110 billion rescue package over the weekend.

Other economic factors contributed to the metal’s slide to six-week lows. A rebound in the dollar index provided downside. On Friday, in the U.S., the Institute for Supply Management released its June manufacturing index, and it was stronger than expected. The index showed growth, for the 23rd consecutive month, offering a positive sign that conditions are improving in the world’s largest economy. Dollar-priced gold appears cheaper to international investors when the greenback softens.

Preliminary data from the US Commodity Futures Trading Commission showed that of Friday money managers cut their bullish bets on COMEX gold futures and options. Holdings in New York’s SPDR Gold Trust, the world’s largest gold-backed ETF, fell 78,000 ounces Friday.

On Monday, in London, gold futures regrouped from some of their losses. Midday, spot gold was up $7.60, at $1,494.10 a troy ounce, due to bargain hunting. Demand for physical buying also increased in Asia, however, it was not enough to reverse the metal’s losses, and analysts cautioned about the level of physical demand in the coming months due to seasonal factors. Summer is typically a quiet time for gold buying, with one analyst claiming that in order for enough demand to be attracted to the market, to overshadow the low physical demand period, gold prices would have to dip below $1,480, which happened only briefly last Friday, and an immediate boost in physical sales caused the metal to rebound. US markets are closed Monday for the Independence Day holiday, and analysts are expecting a day of volatility, exacerbated by thin trading volumes.

In the near-term, analysts do not expect gold prices to rally on increased physical demand, due to the current, low-seasonal demand period; however, resurrecting fears over the stability of Greece may provide more upside. If Greece follows the debt-rollover plan suggested by France, fears of a future default way rear its head again Standard & Poor’s already reported commented that if Greece would choose that path, a default may still be possible. “The debt crisis in Greece has eased somewhat for the time being, but that does not mean it is solved,” said Commerzbank analyst Daniel Briesemann. “The problem is still there — the EU and Greece have only gained some time.”

Freeport strike

On Monday morning, thousands of workers kicked off a weeklong strike at Freeport-McMoran’s (NYSE:FCX) Grasberg gold and copper mine in Indonesia. Workers are demanding higher wages and protesting the dismissal of their union leaders. Rumours were the workers are demanding a 10-fold wage increase to get their pay in line with what workers around the world are earning. Workers put down tools at 7 a.m. local time and refused to discuss terms of their 2011 to 2013 contracts. According to union official Juli Parorongan, up to 10,000 workers from the mine were expected to join the strike after labor groups and management failed to renegotiate contracts seeking wage increases.

The mining giant insisted the work stoppage at the Grasberg mine in the remote province of Papua would not affect production. The stoppage won’t disrupt concentrate shipments because Freeport Indonesia will use its stockpiles to meet contractual sales to buyers, Freeport’s Jakarta-based spokesman Ramdani Sirait said in an emailed statement. Grasberg contains the world’s biggest recoverable reserves of copper and is the largest single gold reserve.