Gold Stays Home On The Range As U.S. And European Equities Bolt Higher

Will Greece default or not? That has been the question. But it grows less relevant by the day as U.S. and European equities shrug off the minor gravitational blip created by the little country dangling off the south of the continent.

Call it “baked in.” Call it indifference. Call it a quest for other opportunities. Regardless of what happens to Greece now, investors are turning to greener pastures. Evidence of this can be found in the solid, if unspectacular, rise today of American indices. All three were up around 0.6%.

Europe roared earlier in the day with the DAX and CAX up almost 4% each and the FTSE up nearly 1.75%.

"There's always that underlying feeling that a deal will be done... but if there was a default, that would be when gold would likely rise to its traditional role as a hedge against a worst-case scenario," ETF Securities analyst Martin Arnold said. "Greeks themselves though are more likely to stick with euros as a currency hedge."

Our sense is that if there is a default it will not be the traditional kind but one where Greece will die by a thousand cuts. They will be walled off from traditional sources of credit in the West and from international bodies dominated by the chief economic powers like the IMF.

Could they turn to Russia? Sure. But the Russian Central Bank is charging its own customers a little under 12%. What would they ask of Greece? As for any pipeline deals, well, we’ll believe them when we see them.

Of far bigger concern right now in world markets is the floundering of the Shanghai index. Five days ago, Shanghai was staring at 5200 as an achievable level. Today, it closed around 4500, 1700 points lower.

Granted, YTD Shanghai is up over 38%, but a few more weeks like the last one will wipe the year’s gain away. Like all markets, timing is everything. Is Shanghai headed toward a more “natural” level of 3500? We think it’s pointed in that direction.

If Europe continues to expand and the U.S. stays on course in its modest yet relentless expansion, China will look less attractive. Another strong possibility is that we will see increased volatility in the Shanghai, with more pure speculation and less investing.

Crude oil, whether West Texas Intermediate or Brent North Sea, is in a range-bound period. Indeed oil is up for the calendar year 2015, but looking back twelve months it is down roughly $39 per barrel. It has stayed in between $50 and $60 since early December of 2014 and doesn’t appear to be going anywhere soon.

One of the reasons is that U.S. fuel economy standards keep tamping down rises in gasoline consumption. Essentially it’s been flat since the recession and aftermath. This kind of sea change indicates that higher mileage cars and less driving are going to be with us more or less permanently.

Gold is off its lows for the day, as bargain hunters have stepped in to take advantage of the nearly $18 plunge earlier in the day. The “Greek premium” is wearing thin as do most endlessly unresolved conditions in markets.

Keep your eye on gold’s established range. As we said a few days ago, sometimes a very rigid range can function in much the same way as a fundamental factor. As if to underscore the indecisiveness in gold prices, bearish bets rose to their highest since November’s slump to 5-year lows at exactly the same time that bullish bets have begun to rise. Yin. Yang. Call it a range.

Wishing you as always, good trading,