Gold has always been the traditional safe haven for investors. A definition of a safe haven is an investment that is expected to retain its value or increase in value during periods of market turbulence.
The current Greek financial crisis certainly fits the bill for creating a period of market turbulence which once again brings investing in gold to the fore.
Last week, gold experienced its best five day run since 15 May when it increased by more than 3%. The precious metal’s price had fallen consistently for three consecutive sessions since 15 May during which time it had fallen by more than 1.2%, before climbing to close last week up 0.95%.
The sought after precious metal gained support at a lower level of $1,184.00 which was the low on 1 June, but failed to break through the higher resistance level of $1,208.90 set on 25 May.
The single biggest factor currently driving the gold price is the continuing uncertainty surrounding the economic crisis facing Greece, the European Union and the knock on effect this can have on the U.S. economy.
Talks between the government of Greece, the IMF, the ECB (European Central Bank) and eurozone member states have ended with results variously described as broken down and a walkout by the IMF, with a crisis meeting to take place followed by an emergency meeting. The Greeks accuse the eurozone members of making excessive demands for austerity measures while the government of Greece is described as being inflexible and unrealistic. Throwing the Russian factor into the mix with Greek Prime Minister Tsipras looking east for assistance makes the situation even more volatile.
The facts are that Greece is running out of time with a payment of $1.5 billion due to the IMF on 30 June with no prospect of leniency on offer from IMF managing director Christine Lagarde in the offing.
We seem to have all the important ingredients for a modern Greek tragedy preparing to play itself out.
The latest comment from Premier Tsipras, speaking in St. Petersburg was that he would be “working for success at today’s meeting”. German Chancellor Angela Merkel meanwhile commented that it wasn't too late to conclude a deal as long as Greece agrees to the reforms required. These comments in the face of continued Greek intransigence seem to just keep the matter going round and round.
Meanwhile, the U.S. Dollar Index which reached a high of 94.70 in early trading Friday settled a little lower at 94.39 in later trading, still 0.2% up. Commodities which are dollar denominated such as gold become more expensive as the USD appreciates. Investors can be expected to turn to gold in increasing numbers as the Greek crisis continues to simmer which can also have the effect of pushing the price of gold higher.
MT4 Chart: Gold