Gold Steadies Amid Greece Fears
Prices of safe haven yellow metal gold jumped on Monday as worldwide fears mounted over a potential Greek debt default. But while some investors depended on the metal, some thought a “Grexit” could still be far away. So while the metal jumped, the divided sentiments failed to trigger a gold rush.
Rallying to reach a near one-week high at $1,186.91, spot gold eventually settled at $1,178.90 an ounce at 2:45 p.m. EDT (1845 GMT). Gold usually benefits from uncertainty in the wider financial markets. The global markets expected a rush especially since Greece had shut down its banks and stock market.
But investors seemed to doubt Greece will exit the currency bloc. “The markets seem to be calming down again after this first hefty reaction,” Commerzbank pointed out in a note to investors.
An unidentified Greek official admitted to Reuters the country will be unable to pay a 1.6 billion euro loan installment to the International Monetary Fund. This is already due on Tuesday.
A report by the Wall Street Journal says investors may have had a change of heart as to the perception of gold as the preferable hedge against uncertain times. “The metal … succumbed to its own feverish hype a few years ago, peaking at an all-time high of around $1,900 an ounce. The tumble since then may have led more than one investor to conclude that even if the world is a scary place, gold isn’t always a refuge.”
Simon Weeks, head of precious metals at the Bank of Nova Scotia, said all bets point to a scenario where the “Greek situation will be resolved.”
Julian Phillips, founder of and contributor to GoldForecaster.com, said gold will most likely make a major move depending on the outcome of the referendum. “If the referendum says no and Greece leaves the E.U., then we will see the full impact,” he said. “If Greece says yes, then it may no longer qualify as a member of the E.U. and be forced to exit.” Phillips predicts a looming 87 percent chance of “Grexit.”
But the escalation of the debt crisis in Greece has put pressure on risky assets such as crude oil and equities. In London, Brent crude dropped 0.9 percent to $62 per barrel.