Gold price plunged below $1,800 per ounce Friday morning

The gold price plunged below $1,800 per ounce Friday morning with profit-taking in the gold futures market fueling the sell-off.Gold price stabilized near $1,782 after the European Central Bank announced “dollar liquidity” measures in cooperation with the U.S. Federal Reserve. With Greece on the verge of default, central banks are furiously attempting to inject confidence into the international monetary system.

While equity markets may therefore have more room to run in the short-term, the facts remain that with Greek one-year yields over 140% and ten-year yields near 25%, the credit markets are saying that it is a near certainty that Greece will default.

Kyle Bass, founder of hedge fund Hayman Capital, elaborated on this dire outcome in an interview with CNBC yesterday. Bass – who correctly has been bullish on the gold price and bearish on the euro zone for the past several years – argued that a Greek default is inevitable due largely to the fact that the nation’s significant debt burdens dwarf its ability to generate economic growth. “Greece has to default,” Bass contended. “It’s going to be a hard default, and then it’s going to be difficult to contain the contagion.”

Although Bass did not directly discuss other European nations facing debt challenges – such as Italy, Portugal, or Spain – the contagion he alluded to may mean a default for other members of the PIIGS. Moreover, Bass noted that there is no enforcement mechanism currently in place by which Germany and France can ensure that the PIIGS properly implement austerity measures and meet economic growth targets.

As for the gold price, while Bass did not focus on it specifically, the dire economic outcome he forecasted is likely to be beneficial for the yellow metal over the longer term. “The world is going to be a more destabilized place a year from now,” he contended.

During past periods of significant financial instability, policymakers across Europe and the U.S. have shown that their response is to drive interest rates lower and print money to try to stimulate their economies.

Comments

Post a Comment

Popular posts from this blog

Gold edges up on weaker dollar, dovish U.S. Fed policy bets

Image
 Gold edged higher on Monday, helped by a weaker dollar and expectations that the U.S. Federal Reserve will reiterate its dovish monetary policy stance this week. Spot gold was up by 0.1% at $1,943.58 per ounce. U.S. gold futures rose 0.1% to $1,950.10 per ounce. “Gold is firm on the basis that the Fed could adopt a further dovish message with respect to average inflation targeting,” said Michael Hewson, chief market analyst at CMC Markets UK. “If you want to have a policy of average inflation targeting, you’re going to have to go into detail as to how you are going to arrive at that particular outcome.” The dollar retreated on Mond ay, bolstering gold’s appeal for investors holding other currencies, ahead of the Fed’s policy decision due on Wednesday. “If inflation forecasts remain at 2% or below, this could offer gold a tailwind as the zero-yielding metal thrives in a low-interest rate environment,” said FXTM analyst Lukman Otunuga. Market participants are also waiting
Read more

Gold Price Futures (GC) Technical Analysis – Trader Reaction to Minor 50% Level at $1954.80 Sets the Tone

Image
  Gold futures closed lower on Thursday but up from its low of the session as investors battled a number of factors including U.S. economic data and outside market influences. Earlier in the session, gold fell over 1%, as positive economic data elevated hopes for a quick recovery while dampening the investment appeal of the precious metal. On Thursday, December Comex gold futures settled at $1937.40, down $11.60 or -0.60%. On the data front, a drop in U.S. jobless claims reported Thursday and positive manufacturing data reported earlier in the week are taking some shine off gold. A weaker Euro is also weighing on dollar-denominated gold by driving up thU.S. Dollar Index. U.S. weekly jobless claims fell below 1 million last week for the second time since the pandemic started, but did not signal a strong recovery in the labor market because the drop largely reflected a change in the methodology used to address seasonal fluctuations in data. Earlier in the week, a report s
Read more

India, not Trump, is the real reason behind the crash in gold prices

Image
If you have been puzzled about the crash in gold prices after Donald Trump's election, you are in the company of almost every analyst and media outlet in the western world. Gold and silver are a major part of the research at The Arora Report. A combination of our proven precious metal algorithms, extensive resources and knowledge of the emerging markets led us to alert subscribers to The Arora Report early that gold was about to crash and the reason behind it. Immediately after the election, the net position of The Arora Report in gold, silver and miners has been short as part of a sophisticated strategy.
Read more