Slow Gold On Greece and Yellen

Gold is off today modestly entirely on dollar strength, regular trading pushing back on the small battlefield. Investors are awaiting two pieces of news before bigger moves are made, as well as looking at a surprise move out of OPEC.

The negotiations between Greece and the rest of the EU – Germany, really, as we have said – are inching forward. Talks could collapse, surely, but it seems a framework is in place and details will be worked out. Our understanding is that some other key EU players, France and Italy specifically, are leaning toward the sentimental insofar as insisting the Greeks stay put within the euro zone structure. The thinking runs, “What is Europe without Greece, the birth land of so many European political, social and artistic currents?”

Fed Chairwoman Janet Yellen is scheduled to appear before both houses of Congress on Wednesday. This will present two possible expressions of Fed thinking. The first, which we lean toward, is that she will underscore what was issued via the FOMC minutes last week, supporting dovish sentiment. There is, however, a school of thought that is cautioning she may say that a June rate hike is still on the table. In fact, it probably is still on the table, but the Fed tends to debate all angles of a given strategy. Why take anything “off the table” at this stage? But words count.

Regardless of the testimony Yellen gives, there will be some ripples so many investors and traders are simply playing it safe.

Crude oil fell once more today and Nigeria, an OPEC member, called for an emergency meeting of the limited cartel. The call is probably more reflective of Nigeria’s precarious economy rather than a real marketing philosophy shift. As more key players are aware, a forced rise in prices will practically immediately bring back now-marginalized U.S. shale oil producers and that would simply drive oil right back down.

West Texas Intermediate was down not quite 3% while Brent fell more than 2%. WTI had touched 1% per barrel but has since fallen as current and potential supply issues, which equal a glut, crossed traders’ minds.

At best gold can only trade in neutral based on examination of fundamentals. The approaching Greek debt deal will deflate safe haven demand even more. The gold-buying season for Lunar New Year in China and other parts of Asia is over. Physical demand for the precious yellow metal seems to be soft in general. While trading contracts can be very profitable because of the long-short capabilities of traders, holding physical gold seems like a no-win at this juncture, although, as always, international events can force that to turn on a dime, or rather, on an ingot.

Wishing you as always, good trading,