Posted on 02 July 2015 with no comments from readers
UBS metals analyst Edel Tully reckons markets have become bored with the Greek crisis and will have to be convinced it will get much worse before buying gold as a safe haven asset. A ‘no’ vote in the referendum on Sunday and Greek exit from the euro would be sufficient.
Gold has actually drifted down this week as the dollar has surged against the euro, though gold is up in euros. Financial markets had a Black Monday but have recovered since.
In a report this week Ms. Tully asked why gold seemed to be so disconnected from the Greek crisis, noting that ‘developments in Greece don’t seem to be impacting gold in any meaningful way,’ compared to ‘how the market has reacted in the past.’
She attributed this trend to ‘headline fatigue’ resulting from heavy coverage of the Greek drama, claiming that ‘the threshold for bad news is higher and it will probably take a lot more to trigger a significant wave of gold safe haven buying.’
Gold price volatility has been on the decline since the beginning of 2015. Ms. Tully only expects more significant movement in gold if there is a rapid deterioration of the situation in Greece over the coming weeks, such as ‘Grexit occurs and there is no credible policy response.’
UBS now projects a 40 per cent chance of Greece leaving the eurozone and a 40 per cent chance of other countries, like Spain and Italy, following suit.
However, it is still hard to rate financial markets anything other than extremely complacent in the face of this high risk of a disaster. At these odds it is almost the same as trusting your life to the flip of a coin.
Smart money holds
Traders may be correct in the short term in avoiding precious metals but the tide could turn very fast and for the average investor taking and holding a position still makes sense.
In fact, Ms. Tully and other analysts say one reason for the gold price’s recent stability is precisely because long-term investors are taking this approach.
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So while the gold price may look unaffected by the Greek crisis that could change at any moment.