More To Gold Than Greece As Market Holds Last Week's Lows

New York (July 13)   Gold was down but not out after Monday’s news that European leaders had agreed to give Greece fresh bailout loans. The metal managed to stay in its recent range and hold above last week's low of $1,145.90, basis the Comex August gold futures contract.

“It’s a lot of short-term news coming out of Greece,” said Frank Holmes of U.S. Global Investors in an interview with Kitco News. Holmes said that gold managed to maintain its rebound from a three-month low – and that the economic risks in China and Greece will prompt the Federal Reserve to delay raising interest rates. Kitco’s Spot Gold Price was last quoted at $1156.00 an ounce, down $6.80.

Holmes said he is paying attention to other matters besides Greece. Topping the list is the recent quarterly derivative report from the Office of the Comptroller of the Currency (OCC). Holmes said that in his reading of the report, Citigroup has “cornered the commodity derivatives complex.” “Their notional exposures soared by 1,260 percent, and $3.9 billion to $53 billion in one quarter,” Holmes said. “The lack of corresponding movement in the spot price of gold when the derivatives book is cornered creates an uncertainty of great magnitude,” he explained.

He added that the other “800-pound commodity gorilla,” is the Chinese economy which is treading water. “They have to get their economy above 50,” says Holmes referring to the Purchasing Managers’ Index (PMI). When looking at PMIs, a reading of 50 or above indicates manufacturing expansion, while a reading below 50 indicates a slowing economy. 

“PMIs for individual countries like China and Greece are negative right now, meaning that manufacturing activity is contracting,” Holmes said. “Our research has shown that when the one-month reading crossed below the three- month trend, there was a significant probability that materials, energy and commodities would fall six months later. Conversely, when it crossed above, manufacturing activity would ramp up, which greatly improved the performance of commodities.”

On a positive note for gold, Holmes said that Swiss gold flows counter reports of slackening gold demand. “Despite the weak gold price, Swiss data shows that physical gold demand continues to be strong and gold is still moving from west to east,” he said. Switzerland is on pace to export a little under 2,000 tons of gold in 2015, the second-most active year on record, Holmes explained.

Source: KitcoNews