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Analysts Comment on Greece, Debt and Fed Easing

Release Date: 
Wednesday, May 23, 2012

The price of gold fell along with the euro as concerns persist over a potential Greek exit from the eurozone and pessimism that today's informal meeting of European leaders won't provide solutions for the region. Gold was $9.80 lower as of 6:50 a.m. Pacific Time on the New York Spot Market, trading at $1,559.50 per ounce, while silver was down $0.53, trading at $27.77 per ounce. (Click here for the most current spot prices.)

UBS said in a note that “as uncertainty mounts leading up to the June 17 Greek elections, we're more inclined to bet on a higher gold price..."

"When currencies fail...gold will become a part of the official reserve currency and silver will have a very, very major role again," said Eric Sprott of Sprott Asset Management. "If you continue to expand your economy by increasing the amount of debt, there comes a time when the productive capacity cannot handle the debt," Sprott said. Sprott pointed to Greece, Spain and Portugal as examples of countries with uncontrolled debt, likening them to falling dominoes.

Other analysts commented on gold's increased appeal given the likelihood of another round of Fed quantitative easing. "Prior to April and May, people had assumed that the probability of quantitative easing was reduced because of the strength in the U.S. economy," which dragged gold prices down, said Stuart Quint, senior investment manager and international strategist at Brinker Capital, which has $12 billion under management. "We think the odds have gone up because of the turmoil in Europe and the weaker data from the U.S." he said.

Jeffrey Sica, president of SICA Wealth Management, which manages more than $1 billion in assets, bought gold during the recent price dip, primarily as a hedge against a weaker dollar.  "We get an opportunity like this when we get a big decline," he said, adding that 10% to 15% of his portfolio is invested in gold.

(Source: “Gold slips in line with euro ahead of EU meeting," Reuters, May 23, 2012; “Gold Investors Seek Silver Lining," Wall Street Journal, May 22, 2012; “Sprott sees great things for gold and silver," Mineweb, May 21, 2012)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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