Gold is trading slightly higher in early trade this morning, but is currently well off the highs seen in the overnight session. Stocks and crude oil are also moving lower, while the dollar index has reversed course and is also in the red.
The big news over the weekend was essentially not news … Greece and its creditors were unable to put together a last minute deal to prevent the country from a likely default tomorrow and end of its four month bailout program extension. Greece has now imposed capital controls, and has closed its banks today as panic begins to ensue. Greek depositors are limited to withdrawals of only $66 per day, and reports claim that many ATM machines are empty.
The lack of a deal over the weekend has set the stage for a Greek default and possible exit from the Euro. In fact, the situation has never been more dire. Greek leaders have called for a referendum to take place on July 5th regarding new austerity measures. Until that vote takes place and without some other type of last minute arrangement being made, the Greek people and Greek markets may be caught in no man’s land — with a huge degree of uncertainty about their financial futures.
A default tomorrow will likely cause even more panic, and there are now worries about contagion. This could be an important moment not only in Greek history, but for the EU as a whole.
China cut interest rates again over the weekend in an attempt to jump start its economy. This may be seen as being bullish for gold and the commodity sector.
This week may see increasing volatility due to Greece and the fact that it is a holiday shortened trading week. Markets will also have some economic data to digest this week. The latest readings on pending home sales, Dallas Fed Manufacturing, Chicago PMI, consumer confidence, weekly jobless claims, ISM Manufacturing and more will be released. The data week will end on Thursday with the release of not only weekly jobless claims but the non-farm payrolls report for June. Consensus estimates are looking for 230,000 jobs added with the unemployment rate dipping slightly to 5.4 percent.
Gold’s lack of upside follow through today in light of current events surrounding Greece has to be a concern for the bulls. The yellow metals is once again below prior support around the $1180 level, and a close below recent lows in the $1167 area could set the stage for another significant leg lower in prices. In our opinion, the bulls must put together some strong closes in order to gain additional upside momentum.
