Gold futures rebounded strongly last Thursday and Friday, rising 0.5% for the week after falling 5% during the previous two weeks. Gold’s price touched $1,599 during Monday morning in Asia though some profit-taking took place. Gold fell by 1% on Monday and Tuesday as the Dollar Index rebounded 0.25% while the euro lost 0.75%. The S&P index rose almost 1% upon better April US home sales data on Tuesday but gave up all of its gains by the end of the day when reports on Greece exiting the euro zone resurfaced while the Facebook stock continued to tumble. The weak sentiment also affected gold, pushing the metal down to a low of $1,555 this Wednesday morning.
While the G8 leaders called for Greece to stay in the euro zone, many economists and fund managers are expecting Greece to abandon the euro currency. Dow Jones Newswire reported the former Greek President Papademos saying that the risk of Greece exiting the euro cannot be ruled out and the consequences could be more severe than anticipated. An inflationary spiral from a large depreciation could wipe out the benefits of exit. After the US market closed Papademos spoke to CNBC and clarified that he was not aware that Greece or any institutions or countries in Europe were specially preparing for Greece's Euro exit. Speculations on Greece have increased before the EU summit which will take place on Wednesday night. Fear of the contagion in other European countries resulting from Greece's Euro exit has prompted investors to sell risky assets and the euro, which leads to the US dollar rising and gold price falling.
An economist from CICC, a Chinese Investment Bank, said that Chinese GDP growth could slow to 6.4% should Greece exit the euro. On Sunday night Chinese Premier Wen said that China should give more priority to maintain economic growth as recent data has shown China's growth has slowed more than expected.
Gold volume recently trading on the Shanghai Gold Exchange was above the monthly average, according to Barclays. However, the chairman of the All India Gems and Jewellery Trade Federation said that India gold jewelry sales could fall 30% to 40% in Q2 and decline 30% in 2012. The good news is that physically-backed ETPs wereup 49 tonnes May 17 year-to-date, according to Barclays, a mere 1% below a recent peak.