Highlights
- As per reports, gold would have a volatile week ahead due to the threats present in Greece and Fed.
- Although the Fed is not expected to revise the rate of interest sometime soon, its Monetary Policy is a clear indication that they are planning to act based on the ongoing condition.
- Also, the negotiating parties from Greece did not budge and were firm on their stand. This resulted in the Euro losing massively as there was no finalization.
- In the week to come, Greece and the Feds would not reach an agreement and this would result in the prices of USD surging, which would result in the value of gold depreciating.
Due to the abovementioned concerns, gold and silver are expected to see a high level of volatility. Due to the FOMC meeting and further escalation of the Greek default issue, the markets are set to become more volatile and gold would see massive changes. Due to the surge is USD prices, the price of gold might drop sharply as a result.
The prices of gold are set to see more volatility in the weeks to come and it might also be affected due to other ongoing aspects in the world. As a result of this volatility, the prices of gold in terms of dollar should fall and this would further intensify the prevailing market trends.
What are the issues?
One of the major meetings of the Federal Open Market Committee (FOMC) is due to be held this week and it would release a statement regarding the monetary policy, which would hint at the hike of interest rates. As per the previous meetings held, the Fed claimed that it would be the first meeting where they would negotiate and then decide upon the hike in interest rates. By taking such moves, investors who had previously managed to make easy money would now have to face the crunch.
This rate hike was not anticipated previously and as a result, it would hinder the appreciation of stocks and the US dollar in the days to come. Also, the surge in USD prices is further supported due to the quantitative easing programs that are taken up in Europe and Japan.
Will there be a hike in the interest rates?
However, as of now, looking at the present scenario, there are bleak chances that the interest rates would be hiked in the next meetings. The Greeks are more concerned about the fall in Euro which would be due to the dollar rising to levels that was never seen before.
The preliminary reports hint that the labor market is strong in this quarter, results from the previous quarter make investors skeptical and hence, no concrete move is taken.
How would it have an impact on USD?
USD might further strengthen owing to the negotiation with Feds and that, coupled with FOMC, would increase the chances of USD appreciating to a great extent. To take care of this, they would stick to stringent policies and it would also mean that the hike in interest rates in July is certain. This results in much anticipation and awaiting of the statement that would be made this week, so that we get to know the resistance levels of the stocks and global currencies.
On similar lines, the negotiations between Greece and the creditors are losing track due to which, talks are failing. While people hope that they would see a better agreement between the parties, both the parties are stubborn and are negotiating strongly with a bid to secure their financial stability. It is clear now that no party would compromise entirely and relent to the conditions put forward by the other side. Both the sides cannot be blamed, as each of them is more concerned with the stability of their market.
What does Europe have to say about it?
Even the stand of Europe is not clear, and while some people think that it would cave in to the demands of Greece, others are under the impression that Europe would not budge. Due to this, there is no confidence among investors and they are skeptical about their investments. Following the release of statement from FMOC, their concerns would further rise and would feel more insecure about their investments.
In the series of meetings that were held in Berlin, a definite outcome was expected. Instead, there was a negative impact and the situation was drifting towards a deadlock. When Greece defaulted itself from paying the IMF payment due for the last week, it was seen by EU as a move from Greece to distance itself from EU. Finally, things have now reached a condition where Greece is demanding its dignity whereas, the lenders are asking Greece to pay the amount back as per the contract.
Why is this receiving attention now?
The news is now making rounds all over the world and has made investors enter panic mode due to the lack of time. The deals that are closed in this region have to be tabled in different parliaments in Europe, which includes Greece too. This makes it likely for Grexident to be applicable, which might include the German government refusing to enter into an agreement with Greece or its creditors.
This move is mainly due to Greece speaking openly about the actions of Germany during WWII. Germany wants Greece to stop digging into past matters and concentrate on the prevailing scenario. As a result of this, there are high chances that Greece would miss out on the IMF payment due and might default itself.
What is the ongoing scenario?
As there is a deadlock, the negotiations are not moving forward and Greece would get defaulted on the payment due to IMF. In the last meeting that was held, the talks broke within an hour, which clearly highlights how stubborn the negotiators are and are not willing to budge.
With the recent turn of developments, it is likely that Greece would separate itself from Europe and the financial markets are clearly not representing the ongoing rift. However, the results would be evident and the markets would start falling eventually. Last week, the stocks of Greeks dropped abruptly. A few of them were trading in the green zone, however, they are expected to fall soon. This would result in the pressure developing on the stocks and banks of Greece, which would gradually be the condition of the stocks and banks in Europe.
What would be the conclusion?
Ultimately, the Euro would trade in the red zone and weaken against the dollar. This would result in USD being traded at levels which were never reached before and USD is set to see a few all-time highs. Off late, the Euro has been trading at significantly lower prices against the dollar and all the markets in Asia were trading low. The next meeting scheduled with Bank of Japan is expected to change the trend and it might strengthen the dollar.
The European Parliament Committee on Economic and Monetary Affairs will meet soon and the decision they take might be unfavorable for Greece.
Gold would trade at lower prices. Investors still hope that the prices might improve, but the support for dollar is much high and is likely to set the dollar surging. However, gold is trading at its lowest and the strengthening of dollar is further lowering the prices of gold. Spot gold is continuing to fall worldwide due to the rise in dollar prices.
When the long-term perspective is considered, gold is likely to be stable and the insurgency in other countries or globalization would only strengthen the position of gold. Investors would however have to be careful regarding the short-term trends of gold and thus, it is best recommended that they take decisions based on their investment term perspective.