In the ongoing global currency war, in which the world is being drown by liquidity and the said “gold fundamentals” are considered to be strong, gold remains quite directionless.
With stock markets around the world pushing to 52-week highs, think of Germany, the U.S., China, India, etc, there seems to be no interest in the yellow metal. The opportunity cost for holding gold related investments is simply too high.
At the same time, with a potential change of direction in monetary policy, investors are waiting to see how that would impact markets (stocks, bonds, metals, commodities, currencies). The masters of the central banks have helped markets push higher since 2009, almost conditionless, but that could change soon.
There are obviously a lot of wild cards out there, both economic and geopolitical. The primary example of an economic shock is Greece, a small country that could send shockwaves across the European region by exiting the European Monetary Union in order to reintroduce the Drachma (its former currency). By doing so, the country could “profit” from a strong devaluation to lighten its debt burden.
According to Capital Economics, in case of such a Grexit scenario the price of gold could push to 1,400 dollars per ounce by the end of the year. Julian Jessop, head of commodities research at Capital Economics, wrote recently that the markets are seemingly still counting on a last-minute solution or trick that will save Greece. Even if Greece is not be able to repay its debts, it would not mean that it will leave the eurozone by default.
Despite that, Jessop is convinced that further escalation around Greece’s debt problems will support the gold price. It is a mistake, according to the head of commodities research, to believe that Greece is a ‘special case’ and that other members of the eurozone won’t follow Greece’s example.
According to Jessop, the real test for gold will come if gold proves to be the refuge of choice for investors in tough times, when investors can no longer accept the risks they do now. If that test takes place soon, gold will move to 1,400 dollars per ounce this year.