Gold came under selling pressure as fears of a possible Greek exit from the European Monetary Union

After enjoying some upside in the early morning, Gold (along with most other markets) came under selling pressure as fears of a possible Greek default and/or exit from the European Monetary Union were reinforced by the cancelling of yesterday evening’s Eurozone leader meeting. It was hoped that yesterday’s meeting would see the Eurozone leaders approve Greece’s proposed austerity budget plans and pave the way for that country to receive the required bailout funds.

For Gold price, as well as commodities in general, if a default and/or withdrawal should occur, there are several important considerations. First, a drop-off in the euro/dollar — a sudden drop to $1.20 appears likely — would of course be negative for commodity prices. Second, financial contagion which could prompt a drying up of money market liquidity, not only in Europe but across the globe. This, in our view would lead to a dramatic fall in commodities (although perhaps not as dramatic as the response to the 2008 credit crunch), even for those traditional safe-havens such as gold. Lastly, the real economic impact on Europe, and via its trade linkages around the globe, would also be felt in the demand for those metals with industrial applications.

Overnight, during Asian trading hours there was some bargain buying of gold and silver on dips below $1,722 and $33.32 respectively. However, the dour mood has continued this morning, with precious metals continuing to lose ground, weighed down by an ever strengthening dollar. Again, as in Asia, we are seeing some bargain hunting, although this time across the complex, which might place a floor on further downside.

Gold support is at $1,713 and $1,706. Resistance is $1,733 and $1,745.