Gold in consolidation mode as Greece nears default, U.K faces downgrade

While gold may have slipped today, it is only in consolidation mode. The rest of the world is still experiencing tough economic times with no real progress. As the price of gold goes up, the trading range is narrower.

Author: Julian Phillips
Posted: Wednesday , 08 Jun 2011

Julian Phillips' daily commentary on the gold and silver markets sees gold slipping today, but Sovereign debt issues continue to weigh on global economy


In the euro the gold price has slipped to €1,048.78 from €1,055.06. Asia allowed the price to fall from over $1,540 overnight and the gold Fix in London was set at $1,535.50 and in the euro at €1,047.98. Take a look at the table at the bottom and you see that gold has fallen in most currencies. It remains in consolidation mode. The dollar moved slightly stronger to €1: $1.4618 in London's morning.

Silver fell back to Fix at $36.22 where it held just ahead of New York's opening.

And debt crises are back on the screen again as a Greek default looks more and more likely. As with individuals, there is sometimes a better case to go bust than to battle an impossible debt repayment schedule. With jurisdiction over Greek debt in Greece itself at the end of the day, no court can make it possible to enter Greece to seize its assets. It may just be more acceptable to the Greeks themselves to default. It would be a far bitterer pill for the E.U. to swallow as it will trigger bank crises and a ripple effect through Ireland, Spain and Portugal thereafter. The appreciation of the euro is, we believe, based on Greece accepting another harder level of austerity. This is by no mean's a foregone conclusion. It may be that the E.U. has to offer much more than expected to get Greece to accept more austerity? After all we could end up with a snap election there and a ‘hung' parliament, much the same as in the U.S. now?

Another blow was felt on the Sovereign debt front, this time by the U.K. Moody's warned that the UK was at risk of losing its AAA rating if growth remained weak and the government failed to meet its budget deficit reduction targets. With the U.K. not showing any economic vibrancy at all, we do expect a loss of credibility to the extent Moody's promises.

Right now the gold and silver prices are looking for direction, which is why they are consolidating. What has changed over the last few years is that consolidations do not lead to major corrections. They can last for some time, but the trading range is narrower during that time. In the past and in other markets [as we saw in silver] we usually see a large drop before a rebound. Now in gold, we see a halt to the rise, a small pullback before we see the sort of consolidation phase we are now seeing. Traders are finding it harder to make the profits they used to in the past and long-term investors, who would pull out ahead of a major correction, before returning to take the price back up are finding that they get out, but an insufficient falls follows. So they get back in once the consolidation is nearing completion at levels not far away from the prices they exited at. It is critical to understand what is happening to make these patterns change, if you want to get the best out of these precious metal markets.

Gold Prices in different currencies which highlight currency moves :

Swiss Franc - Today: Sf1,282.76: 1 ounce of gold.
Friday: 1,291.03: 1 ounce of gold.

U.S. $ - Today: $1,534.40: 1 ounce of gold.
Friday: $1,546.15: 1 ounce of gold.

Euro - Today: €1,048.78: 1 ounce of gold.
Friday: €1,054.21: 1 ounce of gold.

India-Today: Rs. 68,594.58: 1 ounce of gold.
Friday: Rs.69,247.63: 1 ounce of gold.

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