Gold prices are slightly weaker in early trade Friday as stocks move higher, oil sinks and the dollar index rises. The gold market has once again found itself on the defensive as the bulls were able to maintain trade above the psychologically important $1200 level. With gold currently back below prior support in the $1180 area, the market might be setting up for another retest of the $1140 area. A break below this potential support level could possibly see another significant slide in the price of gold, with prices potentially targeting the $1000 per ounce level.
Greece and its creditors are continuing their ongoing negotiations going into the weekend. Reports on progress of these talks appear to be, at this point, quite mixed. Some reports suggest that a deal may be imminent, while others claim that the sides remain far too apart on key issues for a deal to be possible.
Needless to say, time is running out with Greece’s current bailout extension set to expire next week at month’s end. Without the ability to access further bailout funds, the country will run out of money and will not be able to fund government operations. As Greek depositors continue to pull cash out of Greek banks, the possibility of a larger-scale bank run certainly exists if a deal cannot be reached over the weekend.
Markets do not, however, appear to be overly concerned at this point. Gold is lower while stocks are higher (at least thus far) going into a weekend that could potentially have huge headline risk. Although markets appear calm now, that could potentially change quickly if an actual default does take place next week or if a deal does not appear possible in time.
In other news, Chinese stocks saw heavy selling last night as the Shanghai Composite Index fell nearly seven and a half percent. There have been concerns over Chinese stocks being in “bubble” territory, and a further correction may potentially be seen. This could work to gold’s advantage, however, as these investors may seek alternatives to put cash to work in.
Unless a bullish catalyst is seen, gold prices may continue to drift sideways to lower. A Greek default next week could potentially drive prices significantly higher as risk aversion may set in and investors look for perceived safe-haven assets. The notion of falling Chinese equities may potentially keep a floor under gold prices, as well, and could possibly provide a big boost if equity markets begin to accelerate to the downside.
