Gold futures rebounded strongly last Thursday and Friday, rising 0.5% for the week after falling 5% during the previous two weeks. Gold price touched $1,599 during Monday morning in Asia though some profit-taking took place. Gold fell by 1% on Monday and Tuesday as Dollar Index rebounded 0.25% while Euro lost 0.75%. The S&P index rose almost 1% upon better April U.S. home sales data on Tuesday but gave up all of its gains by the end of the day when news of 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 U.S. market has 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 on other European countries resulting from Greece's Euro exit has prompted investors to sell risky assets and the Euro which leads to U.S. 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. Just last 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 traded in 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 jewellery sales could fall 30 to 40 percent in Q2 and decline 30 percent in 2012. The good news is that physically-backed ETPs level was still up 49 tonnes year-to-date to 17 May according to Barclays, a mere 1 percent below its recent peak.