Gold remained range-bound throughout the quarter, as the metal faced a resurgent US economy and the spectre of a rate rise from the US Federal Reserve. Despite Gold-Bugs calling for the precious metal to surge in price, the commodity faces an uphill battle as the US business cycle starts to turn and labour and inflation conditions improve.
Subsequently, the commodity has consolidated sideways between $1,150 and $1,232 an ounce, with little potential for an upside breakout. It also faces significant risk of a downside move in light of statements from the Fed that a rate rise is likely this year. The September FOMC meeting is a likely candidate for a rate rise as improvements in inflation and unemployment throughout the summer period may provide the figures the Fed requires to build a case to raise interest rates.
Greek Crisis Deepens
Our last report warned of the risk the left wing Syriza party posed to Greece’s financial future within the Eurozone. That analysis proved prophetic and the embattled European member state has been pushed to the brink of default by an inflexible Greek government that refuses to bend to the will of their creditors. As we type, the saga lurches into its penultimate hour with capital controls having been introduced to stem the tide of cash withdrawals at Greek banks. Greece has also sought to withdraw from negotiations and instead take their case to their citizens in the form of a referendum on further austerity measures. The reality is that a default is all but assured now and Greece’s future within the Eurozone is slipping away, with an impending exit looking almost inevitable.
However, the sovereign risk present in Europe really has had little effect upon the commodity, with prices still remaining depressed. Considering that the ECB has plans to ring fence any potential Greek default contagion, we therefore anticipate little change to the current status quo.
Technical Analysis
Gold has been notable for its distinct lack of volatility throughout the quarter despite the macro environment. The support zone identified in previous reports is still holding firm and providing gold bulls with a defined area to buy into. The tight short term range between 1160-1230 will likely continue for some time if the lack of volatility remains. The bearish trend has a relatively flat gradient and the support zone looks firm, meaning the larger triangle shape can continue for a long time without being threatened. Eventually, a break either side of this shape will see a strong push and will be a good signal to trade with the momentum.
