Gold ETFs were flat Monday after Greece’s pro-bailout party prevailed in the weekend elections. However, precious metals could be volatile this week on lingering concerns over Spanish sovereign debt and as the Federal Reserve’s policy-setting committee meets.
“For Europe, this should be a relief as it avoids an immediate crisis,” said JP Morgan Funds chief global strategist David Kelly on the Greek elections. “The challenge for Europe’s leaders, which they will need to address at the European Council meeting on June 28th and 29th, is to be bold enough to embrace short-term stimulus to restart their economies, while laying out a path of long-term budget discipline to deal with their still-growing debt.”
The ETF could see action pick up later this week on speculation the Fed will announce more stimulus. Markets will get the Fed announcement on interest rates and the economy on Wednesday, followed by a press conference with Ben Bernanke.
“Gold seems to be waiting for the Fed meeting on Wednesday. It is more sensitive to central bank action than to variations in risk appetite,” said BNP Paribas analyst Anne-Laure Tremblay in a Reuters report.
JP Morgan’s Kelly said European debt fears should not on their own justify further Fed easing.
“However, there is a good chance that a super-dovish Fed will take further measures this week either in a second dose of Operation Twist, by further lengthening the maturities of its balance sheet or by emphasizing that it expects to hold the federal funds rate at current levels all the way into 2015,” he wrote in a weekly outlook.
“Neither measure could possibly help the U.S. economy,” the strategist added. “After all, there cannot be any American consumer or businessperson who is hesitating to borrow because interest rates are too high. More likely, such ‘aid’ would further undermine confidence, thereby perversely acting as a drag on growth.”
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Full disclosure: Tom Lydon’s clients own GLD.