Tick tock tick tock tick tock … The clock continues to run as Greece and the EU appear to be failing to make any progress at all in ongoing negotiations over the country’s debt. Reports have suggested that talks have perhaps shifted to what a Greek default may look like. More and more signs are pointing to a Greek default, and time is running out.
Stocks are continuing to move higher in spite of the potential for a Greek default-at least for now. Now that stocks are making all time highs once again, it is hard to say where the markets may run out of steam. Should Greece and its creditors somehow reach an agreement to avert a default, stocks may begin another leg higher in prices. On the other hand, should Greece default, it could potentially halt the stock rally in its tracks.
Investors have largely shrugged off a potential default thus far, but that could change rapidly. The rally being seen in gold today may be a function of short covering as well as some safe haven demand as the talks between the EU and Greece fizzle. Gold traded below previous support at $1180 on Friday but has come roaring back in today’s session. As of this post, the yellow metal has reclaimed the $1200 level.
In addition to watching ongoing developments between Greece and its creditors, gold investors and markets will be paying close attention to this week’s FOMC meeting announcement. No changes in policy are expected at this week’s meeting, and there is no subsequent press conference. While the central bank will likely reiterate that any decision on rates will be “data dependent,” there is always the possibility of surprise. At this point, debate seems to be focused simply on the timing of the first hike, which could occur in June, September or perhaps even later.
The dollar index has apparently run out of some steam in recent weeks, and any weakness may potentially open the door for higher gold prices. The dollar strength has likely been a major factor in gold’s lack of upside follow through in recent months, and coupled with lower crude oil prices, the gold bulls have not been able to put together a sustainable rally.
Gold appears to be quite comfortable in its recent trading range, and unless there is some type of bullish or bearish catalyst, the market may continue to trade relatively range bound for some time. Greece, and its future in the EU, may be the ‘wildcard” for the gold market.
