Neither the bulls nor the bears in the gold market have had much to crow about for the past couple of weeks, as price action has been choppy on the charts. The market saw big gains in early June that pushed Comex August gold futures to a four-week high of $1,642.40 an ounce. However, selling pressure quickly set in and took away much of the early June advance. Traders of the yellow metal can't seem to decide whether gold is a risk asset or a safe-haven investment, as it has acted like both recently.
Look for more choppy price action on the charts (called consolidation from a technical perspective) until there is a significant fundamental development to shake the market from its present malaise.
This weekend's elections in Greece could be the catalyst that pushes the gold market out of its present sideways and choppy trading range. The entire market is awaiting the Greek elections, which many view as a referendum on that nation adhering to its already promised austerity measures in order to keep European Union bailout funds flowing in. If the market perceives that Greece will not adhere to the austerity programs that are in place, then the market would likely see much keener risk-aversion.
For the gold market, here's how the weekend Greek elections and other upcoming European Union developments will likely affect prices. More of the same Band-Aids regarding the E.U. dealing with its debt crisis (many also call it "kicking the can down the road") would not be bullish for gold, and the market would continue to act mostly like the other raw commodity markets, treating gold as a risk asset.
However, if the Greek election results and the ensuing proclamations from the winning party suggest to the market that Greece will not honor its present austerity plans, then gold would likely quickly awaken from its sideways slumber on the charts to once again become a sought-after safe-haven asset.
The Greek elections could be an inflection point for the entire E.U. debt crisis. After the elections, if the market perceives that Greece will become even more disconnected from the E.U., then this could create a domino effect regarding bigger and more important E.U. nations that are also in financial trouble -- Spain and Italy. Then the fears of a worldwide debt contagion would become more intense. Gold prices would likely soar, as traders and investors would be worried about the survivability of the euro currency in its present form.
If the market reckons that the Greek election results and the country's new leadership will offer an unchanged to slightly more stable approach to the country's financial problem -- this probably has the highest odds of actually occurring -- then gold prices would likely be little affected, and the precious metal would then look to other world matters for direction, such as economic and monetary conditions in the U.S. and China.
