Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold dipped 0.2% as the dollar rallied slightly amid continuing eurozone concerns. Premier Wen Jiabo said China plans to stimulate growth with additional easing, which helped to drive gold higher in Asia. But disappointment over the Group of Eight's inability to arrive at a unified strategy for containing the crisis in Greece over the weekend nudged investors back into the perceived safety of the dollar. A rising dollar puts pressure on gold because it makes gold more expensive in other currencies. Silver fell harder than gold, dropping 1.4%. Platinum and palladium, which are more closely tied to industrial applications, gained 0.2% and 1.2%, respectively, on the strength of China's plans to stimulate its economy.

At the close: June gold slipped $3.20 to $1,588.70; July silver fell 39 cents to settle at $28.32; July platinum added $2.20 to $1,461.50; and June palladium rallied $7.20 to $610.80 an ounce.

According to Bloomberg, hedge funds have reduced wagers on commodities to their lowest levels this year on worries that Greece will ultimately be forced to leave the eurozone. The outlook for commodities was already weak because of economic slowdowns in China and Europe, and ambiguous U.S. data on manufacturing, employment, and consumer sentiment. Gold, which can trade either as a commodity or a safe-haven currency, has been caught up in the commodity sell-off since the eurozone crisis reignited in recent weeks. It has yet to assume decisively its other role, as safe-haven currency.

Until Greece's fate becomes clearer, gold is likely to consolidate around its current levels and remain poised between its two roles. But if the market sees indications that the ECB will provide yet more liquidity for Greece and Spain, or that the Fed will ease again, or that Greece will have to leave the monetary union, today's balance could easily tip. Because of falling U.S. inflation, traders are now pricing in a 55% chance of more Fed easing. And echoing a growing chorus of economists, Pimco chairman Mohamed El-Erian said today that Greece's departure from the euro is probably inevitable. More liquidity and easing could spell a new rally in commodities; Greece's departure, especially if it becomes chaotic, could mean a scramble for safe-havens. Either way, gold is reasonably well-positioned in the current market. The next few weeks should tell the tale.