The king dollar and the Japanese yen are certainly enjoying their upswings on the back of Greek saga. Both currencies are in strong uptrend against the euro. The dollar is also acting as a safe heaven because no one knows if Greece will still be pushed out of the Eurozone as the odds stand above 50 percent.
However, the bigger question which investors are confused is if there is a real threat of Greece leaving the Eurozone then certainly we should see the yellow metal- gold rising, but in fact, the precious metal is under tremendous pressure after the Greek referendum. Yesterday, it suffered its lowest level in a long time and remained unpopular among its lovers.
So, what does this tell us? Does this mean that traders are still optimistic that there will be a deal among the two parties due to new players? Well, the negotiations have resumed and both parties are back on the table and this increases the odds that perhaps this time they may actually strike a deal and the euro remain as the irreversible currency for now. However, the sell off in gold also translates another major factor which is the expectations among investors that the U.S. rates will be going higher soon, perhaps in September and this is making the dollar stronger against gold.
Finally, one of the biggest consumer of gold, India they have lashed out more restrictions on gold imports by introducing gold linked sovereign bonds and this is impacting the physical demand for the shining metal. Nonetheless, the overall trend for the precious metal remain towards the downside and if do see the dollar trend, become more robust, the gold price could hit the 1000 mark very easily.
Back in Europe, hopes are that Greece will submit a new proposal to its creditors and could request a loan from the European stability mechanism ESM. This could provide the country some breathing room if of course approved as the creditors will have a lot more to lose if Greece does not stick to its reform path. However, if the country does show its willingness to to adopt and respect those reforms then certainly it could get another life line from its creditors. The ultimate solution for the Greek crisis is to provide the country with some debt relief and it will be only then, Greece will have a real hope to stand up on its two feet, however for now, Eurozone officials are not ready to throw such kind of deal and it will be sometime before they will come to their senses to admit that such a policy is an absolute necessity.