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Greenspan: Greek Debt Could Hurt U.S. Economy

Release Date: 
Friday, June 17, 2011

A Greek default on its debt is "almost certain" and could help drive the U.S. economy into recession, former Federal Reserve Chairman Alan Greenspan said in an interview yesterday. The price of gold was higher on Friday and according to a majority of polled analysts is poised to rise further.

Fifteen of 23 traders, investors and analysts surveyed by Bloomberg said gold will rise next week. Only five expected lower prices next week and three were neutral. The precious metal traded at $1538.00 per ounce at 7:43 a.m. Pacific Time today on the New York Spot Market.

The dollar fell against the euro on optimism for a new Greek aid package as Germany pledged to work with the European Central Bank to resolve the euro zone debt crisis revolving around Greece.

Chancellor of Germany Angela Merkel signaled her willingness to compromise on her country's demands that bondholders shoulder a "substantial" share of a Greek rescue, saying she'll work with the European Central Bank to resolve the crisis. Greek Prime Minister George Papandreou dismissed his finance minister on Friday and put his main socialist party rival into the job in a bid to force through an unpopular austerity plan to avert bankruptcy.

"The market remains very jittery and there is still far too much uncertainty over Greece," Andrey Kryuchenkov, an analyst at VTB Capital in London, said today in a report. "Global risk sentiment is still sour and bullion could well rally to May highs given a renewed flight to safety should matters worsen." 

The Greek debt crisis "shows no signs of ending," said Hwang Il Doo, a Seoul- based senior trader at KEB Futures Co. "Gold prices remain supported by the macro environment despite seasonal weakness," Barclays Capital said in a note, referring to the widely-known seasonality of the Indian gold market, which is currently in a period of low seasonal buying.

In the United States, the Federal Reserve Bank of Philadelphia's general economic index fell to minus 7.7, the lowest since July 2009, from 3.9 the prior month, according to data released yesterday. A negative index generally signals contraction in the economy.

The Bloomberg gauge of economic expectations slumped to minus 31 this month, the weakest since March 2009. Slowing economic growth generates "political panic," which in turn leads to stimulus incentives, said Guild Monty, chief executive officer at Guild Investment Management Inc, in a note. "Look for another major rally in gold, oil, commodities and stocks," Monty said.

(Sources: "Gold May Climb as European Debt-Crisis Concern Increases Investor Demand,"

Bloomberg, June 17, 2011; "Gold Poised to Drop for Second Week as Growth Concerns Depress Commodities," Bloomberg, June 17, 2011; "PRECIOUS-Gold cuts losses, eyes on Greece," Reuters, June 17, 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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