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Analysts Comment on Greece as Gold Gains

Release Date: 
Tuesday, June 21, 2011

The price of gold rose Tuesday on concerns over Greek debt default and a warning from the International Monetary Fund on potential contagion to other euro zone countries. The dollar was lower against the euro and its benchmark basket of currencies, helping the metal as it traded at $1545.20 at 6:55 a.m. Pacific Time on the New York Spot Market. Analysts at RBS, VTB Capital and MF Global commented on the situation in Greece and other factors that are supportive of gold.

The International Monetary Fund, a contributor of one third of the bailout money for Greece, Ireland and Portugal, made a stern statement to European leaders on the Greek crisis. "Failure to undertake decisive action could rapidly spread the tensions to the core of the euro area and result in large global spillovers," the IMF said.

Greek Prime Minister George Papandreou's cabinet faces a confidence vote later today, the first of three tests the government must pass to avoid default. The vote in Greece follows an ultimatum from euro zone finance ministers that the nation must approve a new five-year package of painful economic austerity reforms in two weeks or lose a 12-billion-euro aid tranche that it needs to avoid bankruptcy.

"Gold is inextricably linked to the events in Greece, both gold and silver are hostage to contagion fears," said RBS analyst Nick Moore. "The elevation of gold can be firmly nailed on safe-haven buying."

"Uncertainty still haunts market participants with small scale safe haven buying pushing bullion prices back up," said Andrey Kryuchenkov, analyst at VTB Capital. "Eurozone's debt woes are fuelled by Greece's failure to adopt fresh austerity measures while it makes the situation worse for other peripheral states with the cost of sovereign funding on the rise."

"Gold will be supported by uncertainty with European sovereign debt, the probability the FOMC leaves accommodative policy in place, from a potential return of investment, and from the possibility that the short-term correction in commodities is nearing its end," said Tom Pawlicki, precious metals and energy analyst at MF Global. The Fed's two-day policy meeting begins on Tuesday. A restatement of the central bank’s commitment to hold interest rates near zero for an extended period on signs the U.S. recovery has lost momentum would support gold prices.

(Sources: "Gold Rises Near $1,544 on Greek Debt Worries," CNBC, June 21, 2011; "Gold May Advance as Weaker Dollar, Greek Debt-Default Concern Spur Demand," Bloomberg, June 21, 2011; "PRECIOUS-Gold ticks up near 2-week high; Greek crisis brews," Reuters, June 21, 2011; "Greek Debt Fears Fail to Spur Flight to Gold," Wall Street Journal, June 21, 2011)

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