Gold prices to climb if Greece gets fixed
Gold prices fall when dollar strengthens, as it has during latest Greek crisis. Gold prices will recover when Greece's path is clear, says a gold expert.
Gold, used an alternative to the U.S. dollar by investors in search of safety, could see a move higher once markets have greater clarity on a resolution to the Greek debt crisis, Marcus Grubb, managing director of investment at the World Gold Council, told CNBC on Monday.
Spot gold, currently trading around $1,595 an ounce, has not acted as the traditional safe haven in recent weeks, with investors preferring the U.S. dollar.
Gold prices have been on the decline since May 6 elections in Greece threw the country into political disarray, fueling fears of a potential euro zone exit by the country. The precious metal regained some ground at the end of last week, however.
“Gold is correlated negatively in the long run with the U.S. dollar, so if there’s a strong dollar you will see a headwind against the gold price,” Grubb told "Squa.
“Investors are buying U.S. Treasurys and U.S. dollars as a hedge against the current macroeconomic situation – the concern about the euro zone, about Greece,” he said.
“As we've seen in previous times in this crisis like in 2008, you typically get a shift into gold once it becomes clear what the scenario is going to look like. At the moment we still don’t know what the scenario will look like. On the other side, investors have been selling gold as they’ve raised cash weightings, moved into the dollar, invested in Treasurys. They've sold gold in order to repair damage in their portfolios,” he added.
Global gold demand was down five percent in the first quarter of 2012, the World Gold Council’s Gold Demand Trends report showed.
“There were a number of negatives in the first quarter…but I think they were offset by the positives, which is why gold demand was only down about 5 percent in tonnage terms,” Grubb said.
“Some of the investment categories were very weak. India was very weak because of two import taxes and an excise tax that caused a strike across most of the states in the jewelry industry, so that disrupted the market," he said.
India, the largest gold market in the world, was down 29 percent in the first quarter.
“That was offset by China, which is still in a very strong growth path, up 10 percent,” Grubb said.
Exchange-traded funds and central bank buying also helped offset the drop in India, he said.