FXS: US GOLD - Precious metals make muted response to Greek elections
By: Tom Jennemann
New York 18/06/2012 - Gold futures eased slightly on Monday after the Greek elections over the weekend pushed back the country's possible exit from the eurozone and delayed an emergency injection of central bank stimulus.
Gold for August delivery on the Comex division of the New York Mercantile Exchange was last down $7.10 at $1,621.00 per ounce. Trade has ranged from $1,606.90 to $1,631.30.
In Greece, the centre-right New Democracy party - which supports a bailout - eked out a narrow victory in Sunday's elections as expected. The markets are now cautiously optimistic that the country's warring political factions will form a coalition government over the next couple days.
“The results are in line with the most recent polls, thus should be market friendly, reducing the likelihood of a near-term Greek exit from the euro and viewed as making successful negotiations with the Troika more likely,” Barclays Capital said in a note.
But even if New Democracy is able to create a new government, the situation is far from settled regarding Greece's massive debt load, Dennis Gartman, an economist and editor of the Gartman Letter, said.
“German Chancellor Angela Merkel has again ruled out renegotiating with a new Greek government regarding the bailout having said this past Saturday, when speaking to her supporters, that the present set of agreements that Greece has struck with international lenders must be adhered to,” Gartman noted.
“None of the Greek parties have said that they will do so; even New Democracy has said that it wants to renegotiate the agreements in question. Ms. Merkel has said that that is really quite impossible,” he added.
The Greek election could also affect how global central banks view the need for stimulus in the immediate term, a US-based gold trader said.
“If the election results went the other way and Greece collapsed, you could bet your last penny that European monetary authorities would expend major resources to pile sandbags around Spain and Italy,” the trader said. “That kind of massive stimulus spending and bank recapitalisation would have been hugely supportive of gold."
While the situation in Europe percolates, the US is also in focus - the Federal Open Market Committee (FOMC) will hold its monthly meeting on Tuesday and Wednesday.
“[Our economists] now expect the FOMC to ease policy further and see a short-term extension of Operation Twist as the most likely outcome, which would give the Fed a few more months to sort out whether the recent softness in data is mainly payback for the warm winter weather, or a more prolonged slowdown; if the latter is the case, then more outright asset purchases that expand the balance sheet (QE3) would become likely,” BarCap said.
Stimulus from the Fed is seen as unequivocally bullish for gold prices because extra liquidity tends to debase the dollar and create future inflationary risks.
In gold-specific news, the Comex net speculative length in gold rose 11.3 tonnes last week to stand at 427.3 tonnes. This was the result of a 19.7-tonne drop in shorts and a slight 8.5-tonne decrease in longs, according to data provided by the Commodity Futures Trading Commission (CFTC).
“Confidence appears to be returning as gold manages to hold above $1,600. However, despite the encouraging declines of the past two weeks, speculative shorts are still uncomfortably high at 163.5 tonnes,” Standard Bank said in a note. "We continue to believe that gold is trading at the lower end of the distribution as implied by its fundamental drivers."
In wider markets, the euro was last about half of a cent weaker at 1.2590 against the dollar, while the Dow Jones industrial average and S&P 500 each opened down 0.37 percent.
In other precious metals, Comex silver for July delivery was last down 40 cents at $28.340 per ounce. Trade was in a range of $28.235-29.010.
Platinum futures for July delivery on Nymex were down $1.20 at $1,486.00 per ounce, while the September palladium contract was at $630.95, down 55 cents.
