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Markets React to Greek Vote, MF Global Bankruptcy

Release Date: 
Tuesday, November 1, 2011

The Greek Prime Minister surprised global markets on Tuesday with his call for a referendum on the bailout agreement reached by European finance ministers and Greek bond holders. The news sent the euro and gold lower against the dollar. Fallout from the collapse of financial firm MF Global also drove markets lower as the company filed for bankruptcy protection on Monday.

"Prices succumbed to a stronger dollar as it makes dollar-denominated commodities look expensive for holders of other currencies," analysts at Mumbai-based Angel Broking said in a note. "Even though gold is considered as a safe-haven asset... prices are mainly taking direction from risk sentiments in the global financial markets." Weaker-than-expected economic data on China in October added to bearish sentiment for the the global economy, but also indicated that China's central bank may start to loosen monetary policy.

"The euro is very weak, the dollar is strong and that has caused selling across the board," said Credit Agricole analyst Robin Bhar. "Greece has caused even more confusion by calling for a referendum and we can't ignore the washout from the MF Global story because their positions are being unwound."

Bhar also highlighted The Bank of Japan’s decision on Monday to weaken the yen through currency intervention, saying that it could drive the price of gold higher. "If the (Bank of Japan) has done what the Swiss (central) bank has done and cap currency strength, that removes yet another safe haven, so you've got the dollar, you've got gold, and you've got U.S. Treasuries on an ever-dwindling list."

Bhar sees a support level for gold at around $1,700 per ounce. "It's holding above $1,700 and while it does, it looks okay. If it does fall below there, people will flock to buy it."

(Sources: "Gold Eases as Greek Vote, MF Global Rattle Markets," CNBC, November 1, 2011; "Gold slumps as euro-zone uncertainty lifts dollar," MarketWatch, November 1, 2011)

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