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European Leaders Reach Deal for Greek Debt

Release Date: 
Thursday, October 27, 2011

European leaders struck a deal with private banks and insurers at a summit in Brussels aimed at stemming the euro-zone debt crisis.  Under the agreement, the institutions will accept a 50% loss on their Greek government bonds. The deal reduces Greek debt by $138.2 billion, which puts the nation’s debt level at 120% of GDP by 2020, versus its current 160%.

The euro hit a seven-week high against the dollar on the news, lending support to gold as the metal was steady in trading. Standard Chartered analyst Daniel Smith commented on the deal, noting "we've seen an upturn in risk appetite across the board; the equity markets have moved higher, the dollar has weakened and that's tended to take a lot of commodities higher."

"Gold may be viewed as a litmus test for investors' gauge of European credibility: a stronger gold price suggests that the lack of details is a sticking point," said UBS analyst Edel Tully.

RBS commodities strategist Nikos Kavalis noted that gold is being supported by "good buying from private banks." He added, "we are looking at ongoing accommodative monetary policy in the U.S. and Europe, and this should continue to help gold. Macroeconomic uncertainty is also supportive - let's not forget that in addition to the European debt problem, we are getting closer and closer to the November 23 deadline for the U.S. debt reduction deal. I cannot be bearish on gold at the moment," he said.

(Sources: "Gold steadies after EU deal emboldens risk-takers," Reuters, October 27, 2011; "COMMODITIES-Oil, copper rise, gold steady on EU deal," CNBC, October 27 2011)

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