The Daily Market Report: Gold Lifted by Rising Greek Concerns, Softer Dollar

15-Jun (USAGOLD) — Gold rebounded from overseas losses to set new 3-session highs. The yellow metal is being supported by rising concerns over Greece and a softer dollar tone.

Yesterday’s talks between Greece and the creditors still at the table — the IMF walked out last week — collapsed after just 45-minutes. Both sides are digging in their heels and consequently the financial press and commentators are spending a lot more time talking about the implications of default and a possible Grexit.

While yields in other periphery countries are on the rise, there have been many assurances in recent weeks that the EU is now positioned to weather a Greek default. “The ECB’s newfound ability to print money, essentially without limit, to support both banks and governments has reduced Greek contagion to insignificance,” said Gavecal chief-economist Anatole Kaletsky in a ProSyn piece last week.

Flooding the market with euros may well indeed mitigate some of the consequences of a sovereign default. However, as we’ve seen time and time again, the treatment (QE) has its own detrimental side effects. Those side effects are likely to positive for gold.

The FT’s Wolfgang Münchua calculates that if Greece acquiesces to creditors’ demands, their debt to GDP ratio would quickly move toward 200%. They’d essentially be borrowing more from the creditors to pay back the funds they previously borrowed from those same creditors, damning themselves to an even longer period of economic stagnation. One that they would be unlikely to recover from, and we’d be right back in the same position with an even bigger debt load to be defaulted on.

Some more mixed U.S. economic data out today. Industrial production and the Empire State index both missed expectations. NAHB index beat expectations.

Given the continued unevenness of the data, the Fed is unlikely to given any deffinitive clues on policy at the end of this week’s FOMC meeting. Yellen will keep the policy cards pretty close to the vest in both the statement and the presser.

WSJ FedWatcher Jon Hilsenrath says we should watch the dot plot to see if FOMC members are still committed to this Q2 recovery scenario. Given that Q2 is just about over, we may see the story change to an H2 recovery. Nonetheless, they’ll likely stick to Yellen’s story; that lift-off this year would be appropriate if the data support such a move.