CelticGold Market Report 5th July 2015
Gold had another disappointing week hitting a three month low on Thursday. A weaker than expected June US payrolls number was able to send Gold a few dollars higher and push the yellow metal off of session lows. However, Gold was still lower for the week.
As we head into a new trading week, uncertainty will continue to dominate the Gold and Silver markets. Traders and investors will react to the Greece referendum scheduled on Sunday and further digest the disappointing US jobs number.
Not much has changed in the technical picture of Gold since our last update. The major area of resistance is in the $1,225 range, while the key area of support is between $1,130-1,140. Although the charts look bearish, Gold has been able to hold the key support zone in the $1,130-$1,160 range. So hopefully that will continue to be the case.
Gold and Greece
Some precious metals investors have been concerned as to why Gold has not been acting as a better safe haven given what has been happening in Greece. There have been a few possible explanations for this.
First, while the Greek crisis is serious, some traders may believe that the European Central Bank has the ability to handle the situation if Greece defaults. Second, many commodities did not perform very well in June.
Platinum, crude oil, copper are all showing weakness, which could mean that deflation is still a threat over the short term. This could be having an effect on investor interest in Gold. And lastly the US Dollar has started to strengthen again, which also could be impacting Gold.
Debt, Gold and Greece
The situation in Greece is an example of the devastating consequences of having too much debt. As many have already pointed out, the biggest problem Greece has is that it is insolvent. The country can not pay back its debts.
Many believe the ECB will likely be able to contain a Greek default should it come to that, however, it is also possible that a Greek default will have far reaching consequences. At this point it is an unknown.
According to Casey Research, Greece sparked the most volatile trading day in four years with the volatility index surging 34% on Monday. So this suggests that traders are uneasy about the unfolding situation in Greece.
Below is a link to an article in the Wall Street Journal about how the Bank of England sees risks to overall financial stability should the problems in Greece intensify.
The lager question is what happens if next time it is a bigger country like Italy, Spain or even France. The debt to GDP ratio for for Italy stands at about 132%; In Portugal it is around 130%; Ireland is 109%; Spain is near 100% and France’s debt to GDP ratio is 95%.
As Jim Sinclair has often said the Gold market is all about debt. The bigger issues in Europe have more to do with the larger economies. Ultimately too much debt is going to lead to problems in the currency markets which is why Gold remains one of the best hedges.
Market Update for Silver
The Silver market, like Gold, did not experience much of a safe haven bid from Greece. Although the metal was only down slightly for the week. In an environment where the overall commodity sector remains weak, Silver will need stronger Gold prices to move higher.
The next key area of resistance for Silver is to overtake $16 again. The key areas of support are at $15.50 and then $15.25. As we mentioned in the Gold update, uncertainty will prevail in the precious metals markets for the foreseeable future.
Over the next month or so a case can be made for higher Silver prices and a case can be made for sideways to lower prices. Traders and investors will continue to react to the day to day news items so we’ll have to see what’s in store for the metals over the next few weeks.
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