The influence of the Greek tragedy that is slowly playing out and the probability that China might commit to more aggressive tactics to stimulate the flagging economy, have combined to give impetus to an increase in the gold price.
A report by Canadian precious metals dealer Kitco of the effects of an interest rate hike by the Fed suggests a counter to an increase in the gold price. Referring to an interest rate hike, the report says, “The first move will be rather small, probably a quarter of a point, and it will be carefully signaled to the market to prevent any surprise. However the strong U.S. greenback seems to be a headwind for the yellow metal, at least in the coming months before the Fed’s hike.”
Unlike the oil price, where the different signals all point to a price decline, the opposing factors influencing the gold price make it more difficult to forecast future prices.
Gold closed higher on Monday, following three losing sessions, on the back of the latest news coming out of Greece and China with investors again seeming to look to the precious metal as a haven in uncertain times.
Gold for August delivery rose by $9.70 or 0.8% on the Comex (GCQ5, -0.47%) to close at $1173.20 an ounce with the bulk of the gains coming in a late flurry during the last forty minutes of trading.
Chief market strategist at Long Leaf Trading Group, Tim Evans, told MarketWatch that gold probably found late support “as the prospect for more aggressive action by the [People's Bank Of China] is circulating, given the recent fallout from Chinese equities.”
National Futures.com President, John Person, said gold was in a position to rally as Chinese stock markets stabilize. “Cash commodity holdings such as aluminium, copper, silver and gold may have been used as margin collateral from the recent stock market debacle in China.” he said on Monday, continuing, “As the Chinese stock market stabilizes, then I would be watching for the hedges to be lifted against these trades and for gold prices to rally.”
There has been no haven lift from the Greek situation and an apparent lack of clarity on Chinese intentions and on the Fed rates hike. Added to this, combining a stronger dollar (USD) and the opposing international factors buffeting the gold price creates uncertainty. These factors have all resulted in Capital Economics lowering its gold price forecast for the end 2015 from $1,400 per ounce to $1,275 per ounce.
MT4 Chart: Gold