By Paul Ploumis 01 Jul 2015 Last updated at 06:13:57 GMT
(Kitco News) - Gold may be breathing a sigh of relief that June is over. Despite the weaker U.S. dollar, lower stock prices and increase in the VIX volatility index, June has been a disappointing month for the precious metals.
The metals appear to be pressured by the deflationary trend, with gold faring the best, down 1.5% says Mike McGlone, research director for New York-based ETF Securities.
"Lower stocks and the increase in the VIX have only happened in the last few days of the month and the first half of the year on potential transitory issues related to Greece, likely lessening their impact as the markets square up for the end of H1," says McGlone.
Silver, although it has been trending down, has stabilized for the most part as currency volatility has increased. It remains the only precious metal up on the year, albeit "barely", says McGlone.
Could the deflationary trend be poised for a reversal?
"We sure hope so, but we have to acknowledge the facts, the overall trend is down," he says. "[L}ook at what the People's Bank of China (PBOC) just did, they cut rates for the third time this year, they did so not because they wanted to, but because they had to," he explains.
Prudent investors should focus on the deflationary trend being in place and try not to pick a bottom, McGlone cautions.
If deflation is in fact transitory as the U.S. Federal Reserve has hinted, and goes away, it would be good news for gold, McGlone says.
He explains that while bond yields are one of the best forward looking indicators of inflation, oil may provide a crucial clue. "It is coiled up to move - having been locked on $60 a barrel for about two months. If it moves down, the Fed will unlikely be able to claim transitory factors, pressuring inflation, which should benefit gold and silver."
Courtesy: Kitco News