Gold benefits from European turmoil, but long-term outlook bearish

Gold benefits from European turmoil, but long-term outlook bearish

29 June 2015, 15:23
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Turmoil in Europe lent support to gold Monday, as the European Central Bank’s decided to limit funds to Greek banks on Sunday, after the country's authorities said it would hold a referendum on whether to accept the terms of international creditors as it vies for fresh rescue funds.

Gold has benefited from the European turmoil, as the long-lasting negotiations between Greece and creditors failed to break the impasse between them, and the cash-strapped country now faces a default on June 30 payment to the International Monetary Fund.

During times of distress, gold is considered to be a shelter asset.

On the Comex division of New York Mercantile Exchange, prices for August gold were up roughly $5.10, or 0.4%, at $1,178 an ounce on Monday. On Friday, it settled $1.40 higher at $1,173.40, marking the precious metal’s biggest gain since June 18 as the drama in Greece intensified heading into the weekend.

September Comex silver was up 4 cents, or 0.2%, at $15.77, leaving the metal little changed from its Friday finish of $15.768, MarketWatch reports.

September copper was nearly flat at $2.63 a pound. October platinum was marginally lower at 1,080.40 an ounce, off 30 cents from its Friday closing price of $1,080.70. September palladium дщые $2.55, or 0.4%, at $676.15.

However, gold's increase is expected to be capped by the solidified dollar which also strengthened versus the euro and other rivals amid Greek jitters.

The ICE U.S. Dollar Index was edging higher, up 0.1%, at 95.5370 on Monday.

Over the short term, gold may be seeing some buying momentum as investors look to accumulate the yellow metal, which traded under $1,200 an ounce, noted Barclays in a June 29 note.

But over the longer term the lender is bearish toward gold:

“But we would caution that we remain in the seasonally slow period for [gold] demand and believe the floor for prices looks vulnerable,” Barclays wrote.

Chris Rupkey, managing director at MUFG Union Bank, N.A said in a research note to clients:

"We think they have to actually pack their bags and leave the Euro zone to cause more damage to the markets, at least in terms of getting the market's worst fears realized. We do think Europe is better set for this crisis than it was back in 2012. Draghi said he would do what it takes, now it is up to the Eurogroup and the heads of state to see if they will do what it takes. Stay tuned. Story is still evolving."

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