LONDON (Sharps Pixley) – The Greek referendum decision has thrown financial markets back into turmoil and not uncharacteristically gold initially stoically stood its ground and pondered – rarely shaken by sudden news as it is. Another interpretation is that gold has some large and powerful forces acting upon it which are presently cancelling each other out. Those forces are phenomenal flows of investment money into gold reflected by a surge in demand for ETFs and physical bars on the one hand – and the negative impact on gold from a stronger dollar (the corollary to a weaker Euro on the freshly announced Greek referendum). So, it is safe haven status against dollar strength – two traditional and powerful drivers of the gold price at odds with each other.
The question of which side wins out remains to be seen. Certainly at Sharps Pixley we are seeing some fantastic flows of money into bullion bars and it is tempting to view the market through that particular eyeglass. Gold is presently marginally weaker this morning trading at $1708 and it will be interesting to see what happens this afternoon when the US market opens. The sell-off in gold from record highs in early September was marked by a massive long liquidation by that impatient and unruly group, the futures traders on COMEX in the US. This last Friday it was seen that the futures traders were re-building their positions (see chart below – with thanks to Reuters) which marks an important shift in sentiment.
Our view is that gold is poised for a move significantly higher as the Greek tragedy has not yet fully played out yet the safe haven role will prevail as the key driver of gold prices as investors seek a lifeboat in a crisis. It is worth remembering that if you could sell all of the world’s annual gold production at current prices then it would give a ‘market cap’ equivalent to the value of Vodafone. In short, the gold market is SMALL and easily driven one way or another. It will be interesting to see how those counter-vailing forces play out in a market that has by tradition remained comparatively un-flustered by news events… but it is clear which way the prevailing wind is coming from.