Risk flight hits gold; Greece likely to dominate the market  HSBC Research

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Risk flight hits gold; Greece likely to dominate the market
 Bullion slide continues as markets remain focused on
Greece, the EUR and risk; if an agreement appears close on
Greece, a recovery in risk assets would be gold-friendly
 Further EUR weakness may undermine gold but the selloff
may encourage emerging markets demand around
USD1,500/oz, notably but exclusively from India
 The slide in PGMs is making both platinum and palladium
attractive but buying interest may be hard to generate
Market focus, emerging trends
The gold and precious metals slide continued in the face of uncertainty over the Greek
crisis, further declines in the EUR and a general flight out of risk, as evidenced by capital
flows into US bond markets and weakness in global equities.
It is likely that at least for the early portion of next week Greece will continue to attract
the precious metals market’s attention. The next major date as regards Greece will be a
vote in the parliament on 30th June on the medium-term fiscal strategy package. This
must be passed before approval of more aid by the eurozone nations, scheduled for July. If
the package appears likely to pass, the way should lie open for the release of EUR12bn in
aid to alleviate short-term funding pressures. Although there is some uncertainty over its
passage – which is contributing to the bullion market’s weakness – HSBC’s Fixed Income
Research argues that Greece is likely to be on course to receive the necessary funding to
last until 2013-14, based in part on the support expressed by EU governments for a
solution to the crisis. If this proves to be the case, risk sentiment is likely to revive

and we would anticipate a recovery in gold prices. Events surrounding the Greek saga have been
unpredictable however and a further flight from risk assets and drop in the EUR may drag gold lower.
Late newswire reports from Reuters stated that banks and policymakers moved closer to a deal designed
to help Greece secure funds ahead of the June 30 vote.
Pronounced declines in gold prices this year have generally been met with heightened emerging markets
buying. After robust demand at the end of 2010 and for much of Q1, physical emerging markets demand
for gold softened. Prices have now dropped cUSD75/oz since hitting record highs in May. We believe the
appetite for gold remains strong in much of the emerging world, notably India, and fresh buying may
materialize now that the market has broken USD1,500/oz. This should help stabilize prices.
The steep drops in crude prices have negatively affected gold. Oil prices are now at their lowest level
since the outbreak of fighting in Libya. Steadier crude prices may lend some support to gold.
We believe the PGMs are moving into oversold territory. Wage negotiations are underway in South Africa
between platinum producers and unions with the two sides far apart. Although Chinese auto production growth
is slowing, it remains positive and US auto production is recovering after a slowdown related to Japan’s
earthquake. Platinum prices are nearing the post-Japanese earthquake lows of USD1,680/oz. We may see some
bottom-picking buying by industrial users which could stabilize platinum prices.