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The low notoriety of the gold trade and its consequences

The last few weeks have been turbulent in Europe with the ‘Grexit’ (Greek Exit) and all the political and economic events surrounding the EU. The world focus is on it and the focus itself have its own repercussions.  Other topics are becoming less relevant when countries are forcing each other in a blurry issue that is the ‘Grexit’ event, that many experts consider the first of many desertions in the EU block.

With that said, becomes obvious that any decision taken on the Greece status will affect in a way or other the financial markets around the world (are getting affected in the meantime, anyway). And that includes the gold prices. At the present moment, the lack of attention at the gold trading topic is already affecting in a relevant manner the gold prices. Investors and technical traders get stagnant and don’t have any major news to boost the market.

Seeing this week’s numbers we can notice a constant drop on prices. June 21 ended the U.S. session at US$ 1199,20 an ounce and drop a total of US$ 22,30 in the following days, until the close of June 24. This relevant drop on gold prices is becoming a trend and is almost hitting a three-week low.

Trading is getting weaker in many areas and the gold is one of the most injured. We can see how confidence is declining on Germany’s businesses according to IFO Business Confidence Index and looks like it is because all the political trouble suffering the EU last weeks. The big news companies are watching closely the Grexit event and the possible Greece’s default.

Multiple events are affecting the gold prices right now but the serious lack of notoriety on the gold trade is the biggest. On the other side, there are big expectations because the India’s legal reforms on gold trading. Importing gold is now getting easier after being highly tight about it and is expecting to become the largest gold importer, beating China’s gold import numbers.

That can be easily refuted, because many experts considers that China has a strong long-term plan to back up the Yuan with gold in the next few years, diversifying the risk. Maybe China no longer consider the US dollar and the Euro a good option for reserve currency and expect an important fall of the prices. Other experts in the matter thing that China is planning implement a Gold Standard that can be a weird choice, considering the volume of commerce in the matter of exports, what is already fortifying the Asian currency.

Looks like Russia and India have similar plans. In the peculiar case of India, the case may not be an economic one but a cultural one. The Indian culture consider the gold as a really precious metal than represents luxury and prosperity in their traditions and religion (you can see many depicted deities adorned with gold and jewels). Also gold is seen by the Indians as a good way to transfer wealth across generations.

It is very clear that in the case of Russia isn’t a cultural manner. The eastern country may be planning something similar to the Chinese one. If the plan is to back up the Yuan and the Ruble, diversifying assets with gold looks like a great option to go. The pseudo communists countries can be planning to become the providers of a reserve currency, instead of the western ones.

Despite this political and economic fact, the gold price is getting lower every day and the Chinese import of the precious metal is seen to drop 20% by the end of 2015. Can seem an odd situation but looks like it’s because the lack of confidence among Asians investors. Many investors are looking forward Chinese bonds instead of the precious metal this year. That can be cause by the exponential grow of the exports lately. Or maybe can be cause by the constant fall of the gold prices itself.

Regardless the causes of the massive Chinese import of gold the last years and the lately decrease of it, the causes aren’t very clear for the experts. The high value of the dollar can be a significant cause of the low cost of the gold these days. Getting a cheap dollar can be healthy for many aspects of the US economics and is the constant intention of the FED.

Can be interesting to watch that gold prices had seen highly diverse numbers since 2000. In March 2001 the gold ounce touch the lowest point in the last 15 years at US$ 257,70 and several years later, in September 2011 it touch the highest number lately, at US$ 1809,90, what can bring us hope.

By the moment I’m finishing this article, gold price fell again, from US$ 1174,30 at June 25 closing to US$ 1171,26 at 11:09 AM New York Time.