jueves, 9 de julio de 2015

jueves, julio 09, 2015
Why The Greek Gods Show Gold No Favor

by: Markos Kaminis            
             

Summary
  • A disturbing Greek vote disrupted trading in stocks globally Monday morning, yet gold was hardly moved.
  • The value of gold is determined by multiple factors, including the value of the dollar.
  • The dollar gained sharply Monday morning against global currencies, as it attracted capital seeking safe haven and because of relative strength versus the euro.
  • For gold, the impact of the dollar's gain offset the impact of European uncertainty today, and kept the price of gold in check.
  • When looking to gold as a safe haven destination, investors should always consider the dollar.
Gold investors may be dumbfounded this Monday morning by the inaction of the precious metal. The Greeks voted "no" over the weekend and stocks opened to turmoil on Monday. Uncertainty around the Greece issue has never been more prominent, and yet the SPDR Gold Trust (NYSE: GLD), which tracks the spot price of the metal, was relatively unchanged in the early AM on Monday. The reason is simple, the dollar factor still outweighs the safe haven factor for gold, and so as the dollar gained this morning, the upside for gold was stymied. Thus, it does appear the Greek Gods show no favor to gold.

To make my point, let me show how much turmoil was present in the markets Monday morning. Greek stocks (NYSEARCA: GREK) were down sharply and the GREK ETF was down more than 5% after a 10% drop on the open. European shares were sharply lower, as evidenced by the 1.9% drop of the Vanguard FTSE Europe ETF (NYSE: VGK). The SPDR S&P 500 (NYSE: SPY) was off as well, but like other securities came up off its lows. Most importantly, the volatility security, the iPath S&P 500 VIX (NYSE: VXX), gained by 4% at the open, and was still higher by 1.9% as I scribbled Monday morning.

A flight to safety should have been in process, and it was, but not into gold. The relative calm in the GLD price sure did reflect that. Why though?

(click to enlarge)
Dollar Index Day Chart at Bloomberg

It is because while stocks were shaken, the dollar was gaining ground Monday. The dollar is the first safe haven, or U.S. treasuries, especially when the euro is challenged. The dollar index chart here shows how the dollar opened significantly higher this morning and remained higher into the noon hour. Naturally then, gold priced in dollar terms is going to decline in value. In fact, most commodities should decline in value if the dollar gains, keeping all other factors in check. Oil (NYSEARCA: OIL) fell Monday, partly due to the dollar gains but also on the prospect of an Iranian deal. The Bloomberg Commodity Index was down 2.0% around noon, making my point clear.

Precious Metals Relative SecurityMonday at Noon
SPDR Gold Trust+0.2%
iShares Silver Trust (NYSE: SLV)+0.5%
Market Vectors Gold Miners (NYSE: GDX)+1.4%
Market Vectors Junior Gold Miners (NYSE: GDXJ)+0.1%
Direxion Daily Gold Miners Bullish 3X (NYSE: NUGT)+3.9%
Randgold Resources (NASDAQ: GOLD)+0.9%

The price of gold was hardly changed, as obvious by the fractional move in the GLD. Yet, gold's safe haven factor was evident despite the lack of action, as it was doing better than most commodities. Gold miners are levered to the price of gold, as it has a direct impact on revenues for miners, so their shares are prospectively looking higher today. The levered NUGT security is sharply higher because of its leverage but also because of prospective demand for these securities as a bet on chaos.

Gold investors are right to see the precious metal I define as mankind's default currency as a safe haven. However, they should also keep the dollar in mind when looking for upside. Chaotic events are going to have to be extreme to move gold if it means a move against the dollar factor.

However, chaotic events that occur in the U.S. and threaten America or the American economy should have an extreme impact on the price of gold. In the case of Greece, that is not the case.

0 comments:

Publicar un comentario