Greece Front And Center Boosts Gold On Haven Demand

Gold rose today on a fairly strong movement toward haven demand due to the Greek debt crisis. That problem also drove down equities on all major exchanges across the world. However, as we head into the afternoon, gold (and silver) are off their earlier highs.

There were also some short covering and bargain hunting, but this should be considered as very opportunistic and short term given that tomorrow will begin the June FOMC meeting. Unless someone has slipped peyote into the teacups at the meeting, expect rates to stay the same with a louder admonishment concerning September’s meeting.

We also believe that throughout all markets, there is a bit of blowback from President Obama’s defeat Friday in the U.S. House concerning the Trans Pacific Partnership. If analysts and traders saw things in long-term views, they would comprehend that slowing down an agreement that covers 40% of world trade for the next fifty years is actually a good thing.

The Greek morass grows denser and denser as the clock ticks. It’s hard to put a happy face on the Greek-EU talks. In short, they have collapsed. And, in the wake of the truculence by Greece’s negotiators, the country’s economy seems to be crumbling as well.

Pireaus Bank shares fell by almost 12%, while other Greek banks fell between 6% and 9% in Monday trading. (Thus the safe-haven move toward gold.) Greek 10-year bond yields rose to 12.2%. This may sound dire, but consider that Russian bond yields were just lowered today to 11.5%. There are a lot of “sick men” in Europe and on its borders right now.

Speaking of Russia, also driving haven demand for precious metals is a plan by the United States to store battle-ready equipment forward in Eastern Europe. While it amounts to little in the face of any larger Russian threat, it is a signal to Moscow that their bellicose stances need to be trimmed back. The last thing the world needs now is another Cold War.

While U.S. stock averages are still off for the day, they are up considerably from morning lows when the Asian and European downside momentum sloshed over into New York.

Crude, both Brent North Sea and West Texas Intermediate appear poised to test the lower end of their current trading ranges. Once again, the problem is the gap between supply and demand. (Surprise.)

Saudi Arabia and Iraq are keeping output high. Libya, which is just in the beginnings of recovery from their civil war, is upping production. OPEC alone is pumping more than 2 million excess barrels per day into the world marketplace. Another news item knocked the premium down on crude from the Middle East. The warring factions in Yemen, on the Saudis’ doorstep, agreed to negotiate under U.S. auspices in Geneva.

Demand is picking up, especially in the United States, but that may be largely seasonal. And, of course, always hovering in the background, threatening prices is the potential of higher North American output – shale in the U.S. and tar sands in Canada. It should also be noted that Mexico is in the midst of a reform of the way its nationalized oil industry s managed. Mexico has lagged far behind its potential.

Finally, we are also in wait-and-see mode as the FOMC convenes tomorrow. Without further speculating on the meeting’s outcome, we can be assured everyone will be stopped in place by the what-if rumors that will be darting around for the next few days.

We haven’t digested completely news that the U.S. manufacturing sector shrank again in May, so we will hold off making any correlations to how it might have affected markets broadly. Naturally, it could not have been good for the Dow Jones Industrial average.

Wishing you as always, good trading,