Gold prices are moderately higher this morning as stocks sell off, oil is flat and the U.S. dollar index is higher. Gold is trying to maintain trade above the psychologically important $1200 once again after seeing some weakness in recent sessions.
Likely driving some buying interest in gold currently is the ongoing situation with Greece and the EU. Greek bond yields have been spiking again recently as concerns mount that the country will not be able to make its debt payments. Greece is currently in the middle of a four month extension on its current bailout package. With the clock ticking, negotiations do not appear to be going very well. As the deadline of the bailout extension approaches, investors and global markets may get more and more nervous about a potential Greek exit or default. These nerves may potentially drive buying in perceived safe haven assets such as gold and silver.
As risk aversion sets in again, yields on German bonds are hitting record lows while U.S. ten year note prices remain near their recent highs. While no one knows for sure how a Greek default or exit from the EU may affect financial markets, there is the possibility of a “panic” among investors. Should this occur gold could potentially spike in price as investors seek out its perceived stability.
Oil prices have been moving up in recent sessions which may further boost precious metals. There is likely still a large short position in crude oil that could potentially drive prices sharply higher should a short covering rally ensue. On the other hand, if oil prices roll over once again it may potentially limit further upside in gold and precious metals.
The dollar index has come off its highs once again and appears to be showing some signs of weakness. The dollar strength has likely been a big contributing factor to gold’s lack of follow through on the upside in recent months. Should the dollar index begin to trend lower, it may potentially give gold bulls a green light to buy and drive prices higher.
Gold has been fairly range bound in recent weeks, and the $1220 area on the upside remains near term resistance. Should the gold bulls be able to breach this level and move higher, it could set the stage for a larger scale rally. On the downside, the $1140 area remains a key level. A breach below this area could potentially set the stage for another leg lower in price. The gold market will be watching developments in the EU as well as looking for more clarity from the Fed in the meantime. Until more is known regarding these situations, gold may remain comfortable in its recent price range.
