Optimism on the possibility of a deal between Greece and her creditors before the final bell powered gold futures to lower levels on Tuesday.
The price for August delivery touched a three month low of $1165.40 an ounce, a price last seen in mid-March, although it recovered slightly on the Comex (GCQ5, +0.15%) later to settle at $1171.80 an ounce.
After reaching a high of just over $1300 an ounce in the second half of January, the price of the gold declined steadily through the first quarter finding a lower resistance level at about $1150. The closing price at the end of trading on Tuesday meant that the precious metal showed a marked loss for the first half of 2015.
Richard Gotterer, managing director and senior financial adviser at Wescott Financial Advisory Group commented that it would appear that investors just don't believe that the Greek Prime Minister Alexis Tsipras will let it go down to the wire. He added, “I guess there's hope and belief that a deal will emerge before the July 5th referendum”.
Reports were that PM Tsipras had made a last ditch appeal to the EU requesting a short extension to Greece’s current bailout accompanied by a two year rescue deal.
A BBC report on the Greek request datelined after the expiry of the bailout arrangement as well as the repayment deadline for the $1.5 billion due to the IMF indicates that the eurozone has rejected the appeal.
The decision by the eurozone finance ministers after a late night conference call was announced by the Dutch finance minister and current Eurogroup chairman, Jeroen Dijsselbloem. According to the BBC report, he said it would be “crazy” to extend the Greek bailout beyond midnight (Greek time) as Athens was steadfastly refusing to in any way accommodate the European proposals on the table. Speaking after the conference call, he did however say that the Greek request for a new 29.1 billion euro European aid program would be considered later.
The continuing uncertainty of the situation between Greece and her creditors saw the euro trading lower against the U.S. dollar (EURUSD, - 0.0090%) while the U.S. ICE dollar index (DXY, +0.04%) strengthened, putting further pressure on the dollar denominated gold price. The price however recovered in overnight trading to reach a price of $1173.40 which is still lower than the price at the beginning of January.
The lower demand for gold on the Indian market would likely exert downward pressure on the price according to Chintan Karnani, chief market analyst at Insignia Consultants. He says that Indian rural buyers are waiting to get a clear picture of the monsoon rains before they commit to buying gold.
Naeem Aslam, chief market analyst at AvaTrade, said that the only way he can see an increase in the demand for gold would be if the European Central Bank cuts off the emergency liquidity assistance to the Greek banks. This would in turn increase the potential for a Greek exit from the eurozone to 50% as the banks will be under pressure to issue some sort of currency IOU.
Aslam added that these circumstances could result in gold price volatility as the uncertainty would push the demand for gold with the risk of contagion and this could take place in the absence of liquidity or investors losing faith in the euro (EUR).
This week, ending with the Greek referendum, should result in more clarity emerging for the way ahead with the possibility of increasing market volatility the longer the uncertainties remain.
MT4 Chart: Gold