Gold Prices Defy Odds, Decline on Uncertainty in Greece

Gold Prices Flat on GreeceIf you thought Greece’s recent fiasco would cause gold prices to soar, you were left disappointed.

Despite Greece failing to pay the International Monetary Fund (IMF) and its banks being closed, the yellow metal declined in price as Greece’s woes intensified, as the chart below shows.

gold spot price cme chart 7 July 2015

Chart Courtesy of www.StockCharts.com

This is a very different situation from when Greece made headlines in the past. In April 2010, when news first came out that Greece might default on its debt, and eurozone nations scrambled to get a bailout for the country, gold prices rose six percent in a month. Look at the chart below to see how gold reacted back then.

gold spot price cme chart 3 may 2010

Chart Courtesy of www.StockCharts.com

Why the sudden change in gold’s price response to what is going on in Greece? Did demand for the metal drop? Is gold no longer a hedge against uncertainty? After all, Greece is in a worse place now than before; it actually missed its payment to the IMF. This was the first time a developed nation has done this. And worst of all, Greece’s problems are threatening the future of a major global currency—the euro.

Gold Demand Soaring; Major Mints Sell Massive

Physical demand for gold has been strong throughout the Greece crisis.

According to the Royal Mint, “In June, we experienced twice the expected demand for Sovereign bullion coins from our customers based in Greece.” (Source: The Wall Street Journal, June 30, 2015.)

The numbers from the U.S. Mint show a significant flight to safety as well for gold. In June, the U.S. Mint sold 76,000 ounces of gold in American Eagle coins. A month earlier, it only sold 21,500—a jump of 253% month-over-month! (Source: U.S. Mint, last accessed July 8, 2015.)

In the first few days of July, the U.S. Mint had already sold 40,000 ounces of gold in American Eagle coins. If this pace continues, July gold coins sales at the Mint will surpass June’s sales.

What’s Really Happening to Gold Prices?

Gold bullion prices are failing to move higher as uncertainty over the euro increased, and as the Chinese stock market crashed—both on the backdrop of soaring real demand. This opens up the manipulation debate again. But that’s for the regulators to work out.

Dear reader, keeping your thinking straight when investing, despite all the “noise” the market delivers, is of utmost importance.

The fundamentals for the gold market couldn’t be better. Demand remains strong. Coin sales soaring at major mints is just one example of that demand. India and China’s demand for the metal will only increase. Central banks are buying gold, too. Meanwhile, on the other side of the equation, supply is contracting as worldwide mine output declines.

If you already own gold and are frustrated that prices have not risen this year, your best strategy (aside from mastering the virtue of patience) is buying more as prices weaken further. This way you are averaging down your cost. If you don’t own gold-related investments yet, what are you waiting for?

Investors: This Could Send Gold Prices Soaring in 2015