Gold: a safe haven no more?

<p>One of the big themes we’ve been exploring this week as the Greek debt negotiations deteriorate  is the appeal of so-called “safe haven” assets. Most […]</p>

One of the big themes we’ve been exploring this week as the Greek debt negotiations deteriorate  is the appeal of so-called “safe haven” assets. Most traditional safe haven assets are acting as expected, with money flowing into the Japanese yen, US dollar, US Treasury bonds, and the Swiss franc (though the SNB’s decision to intervene in its currency may redirect some of that capital toward the British pound), but there has been one notable laggard: gold.

The yellow metal has been used in human commerce for at least 2,500 years, giving it historical cachet as a store of value, and even J.P. Morgan himself once stated that “Gold and silver are money. Everything else is credit.” At least based on the reaction to this week’s news about Greece, modern traders beg to differ with the great banker.

Gold has held steady within 25 points of the $1200 level for over three months now, and while it did gap slightly higher yesterday after the collapse of the Greek debt negotiations, those gains were short-lived. As of writing, the yellow metal is on track for its lowest close since March, dramatically lagging its safe-haven rivals. We often note that one of the strongest signals in trading is when an instrument fails to act “as expected” to a major fundamental development, and this week’s lackluster reaction suggests that gold may be losing its luster and on the verge of a big breakdown.

For now, the pair remains barely within its 3-month range, but a close below 1170 or so could open the floodgates for bearish traders to target the year-to-date low at 1145. Given the extended consolidation, conservative traders may want to wait for a breakdown in the RSI indicator below its corresponding support level at 40. Meanwhile, a rally off the 1175 floor later this week could portend more frustrating consolidation around the 1200 level as we move through July.

GOLDDAILY6-30-2015 2-21-00 PMSource: City Index

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.