Commodity Update; Gold – 09 December 2014

Gold resilient against a backdrop of economic uncertainty and political risk; rallies on Greece

Spot gold remained resilient throughout much of the last week, recovering well from its payroll induced plunge on Friday and going on the gain considerably from developments in peripheral Europe over Monday and Tuesday.

The recent gains were prompted by a downgrade to the Italian credit rating late on Friday, followed by a return of Greece to the headlines on Tuesday, both of which have served to unnerve investors.

In detail, endemic deflation and recessionary conditions were the root cause of ratings action from Standard and Poor’s last week, while a push by Greek Prime Minister Antonis Samaras to bring forward the country’s Presidential election by two months has proved the key driver of volatility in the new week.

Our European Economic Update, from 08 December, details extensively the political risks facing Europe as we head into 2015. While we initially scheduled political risk as a key factor for investors in the year ahead, Tuesday’s events in Greece have now brought forward the timing of this as well as the next Presidential election.

This is because Samaras’s party in the Greek parliament lacks a sufficient majority for the Prime Minister’s preferred candidate to secure the Presidential seat. In order for a majority seat to be secured, the Prime Minister will need to secure the support of 25 opposition lawmakers or, under Greek law, the Presidential vote will have to go to the polls.

It is at the polls that the risks to investors begin to build, most notably because current official projections suggest that in a public vote the anti-EU and anti-bailout Syriza party candidate will come out on top.

When considering that European finance ministers have recently ordered more austerity measures be implemented in order for the nation to receive the final tranche of bailout cash due in the coming months, the consequences to financial markets of a public endorsement of the Syriza party and its presidential candidate are unsettling to say the least.

For these reasons, and given that the actual election for Greece is still one week away, we see scope for gold to remain supported near to current levels during the days ahead. However, past here, the outlook is less certain.

Spot Gold // Hourly Intervals

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