2012-02-22

Greece has secured a €130 billion rescue package - Gold prices rose

The gold price spiked Tuesday morning, rising $11.50 to $1,746 per ounce.  News late yesterday that Greece has secured a €130 billion rescue package failed to quell speculation that Greece would eventually be forced out or leave the euro. Gold prices rose on the news.

Last week, a plethora of U.S. economic data combined with ongoing uncertainty over the Greek bailout to send the gold price oscillating between gains and losses.  Looking ahead to the coming week, a similar slate of items likely to impact the price of gold await.  Euro zone officials will hold additional meetings to discuss the specifics of Greece’s aid package.  Also, the U.S. economic calendar contains several noteworthy reports.

Mark Luschini, chief investment strategist at Janney Montgomery Scott, wrote in a recent note to clients that “Everyone is playing this gigantic game of brinksmanship but I suspect they [Greece and the euro zone] are working toward avoiding default and there will be an agreement. Greece knows what it will have to do and Europe will provide funds.”

Lushini was proved correct and the euro currency is rallying against the U.S. dollar this morning.  The gold price, given its relatively high correlation of late with the euro, is also catching a bid off the news out of Europe.  The currency debasement that will inevitably stem from yet another bailout bodes well for gold’s longer-term prospects.

In the U.S., Existing Home Sales for January will be released on Wednesday, followed by weekly jobless claims on Thursday.  Last week, jobless claims fell to 348,000 – their lowest level since March 2008.  However, a considerable portion of the decline has been due to a drop in the labor participation rate, suggesting that many individuals are dropping out of their labor force.  The week then concludes on Friday with the University of Michigan Consumer Sentiment Index and New Home Sales for January.

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