Commodity Update, Gold – 26 January 2015

Gold reaches four month high on European uncertainties

Spot gold rallied throughout much of last week as markets increased bets that the ECB would step up its efforts to stave off deflation with its own QE program. The move in the precious metal also reflected increasing unease over the Greek election at the weekend, as the SYRIZA party’s lead continued to widen in the opinion polls.

This saw spot gold break through the $1300 mark for the first time since August as investor concerns grew over the impact of a Syriza victory and the economic impact of an ECB QE program.

Now on the other side of the weekend SYRIZA has seized power through a landmark election in Greece and has entered into a coalition with the Independent Greeks party in order to secure a parliamentary majority.

This has of course set off a chain reaction across Europe, with statements emerging from many continental and non-continental capitals throughout recent days, many of which appear to indicate that the new leadership in Greece will be hard pressed to deliver upon its election promises.

Here, we note that the group of European finance ministers, ECOFIN, stated yesterday that it would not meet with Prime Minister Tsipras unless he dropped calls for further debt write offs. This was as the European Commission president stated explicitly that there would be no debt write offs for Greece.

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Looking ahead  

Looking ahead, the pace of gold’s appreciation appears to have moderated and as we head toward US durable goods numbers on Tuesday, the FOMC statement on Wednesday and Q4 GDP numbers on Friday, we see the risks to the metal as tilted toward the downside.

However, looking past the economic data announcements for the week, we still see scope for gold to recover and achieve levels above the $1300 barrier. This would most likely occur as a result of eventual horse trading between Greece and its European creditors, although admittedly, we see this as a being a higher possibility outcome for next week as opposed to the coming days.  

Spot Gold / Hourly Intervals

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