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Greek Debt Default Fears Intensify

Release Date: 
Thursday, June 16, 2011

Fears over a potential Greek debt default continue to worry the markets. The euro fell against the dollar today as speculation the Greek debt crisis will overwhelm the country lowered demand for the EU’s currency. The prime minister's plan to reshuffle the government was thrown into chaos after a string of parliamentary resignations.

"Investors are skeptical that a new government will be able to convince the disillusioned masses to accept more austerity measures. Instead, much needed budget cuts could be delayed," said Ong Yi Ling, investment analyst at Phillip Futures. "Until Greece produces a plan for future debt sustainability, aid could be withheld. As the likelihood of a technical default increases, a flight to safety could cause gold and the dollar to rise in tandem."

In other news, uncertainty related to talks on the U.S. debt ceiling is expected to provide support for gold as concerns over the weak U.S. economy linger. U.S. consumer prices recently logged their biggest rise in nearly three years and a regional manufacturing gauge contracted this month.

"The market has an underlying confidence level based upon what is going on in the Middle East, with the debt crisis, with Greece and the general feeling is dollar doom-and-gloom," said ANZ head of metals sales Peter Hillyard, commenting on the support for gold prices. "The truth of the matter is the fund managers, the people who are in this market for the longer run are looking to buy it and it is they who will influence the game."

"Gold is a bastion of strength right now when the equity, crude oil and other commodity markets are weak," said Robert Lutts, chief investment officer at Cabot Money Management, a wealth management firm with $500 million in assets.

Central banks will be net buyers of gold this year and probably next year, World Gold Council Managing Director Marcus Grubb said at a conference in London today. They have already bought 129 metric tons this year through April, exceeding last year’s total of 90 tons, he said.

(Sources: "Gold Steadies Near $1,529 but Focus Remains on Greece," CNBC, June 16, 2011; "PRECIOUS-Gold loses footing as U.S. dollar jumps," Reuters, June 16, 2011; "Gold Climbs in New York Trading as Central Bank Buying May Support Demand," Bloomberg, June 16, 2011; "PRECIOUS-Gold holds firm as equities, oil drop further," June 15, 2011)

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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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