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Markets Sell Off Over Greece Concerns

Release Date: 
Monday, October 3, 2011

Greece announced Sunday that it would miss its deficit reduction targets for this year which were required as part of the Greek financial bailout package. However, the country moved ahead with a controversial budget plan to slash thousands of public-sector jobs to meet the demands of creditors. The news sparked a sell-off in equities and commodities while driving the price of gold higher.

In light of the Greek announcement, European Central Bank member Christian Noyer said on Monday it is unrealistic to expect an increase in Europe's bailout fund beyond what was set in July, but that he is open to options that would allow leveraging to expand capacity.

"After the recent washout, gold positioning is far from extended and this is quite a bullish signal for price strength ahead, said UBS analyst Edel Tully. The 'clean' nature of current [speculative] positions, along with physical and long-term demand, is creating a very healthy foundation for gold to climb from," the bank said. "We expect physical demand to be quite decent in the coming days, barring China where markets are closed for the week, but buyers there should return with vigor after the holidays."

The "financial markets are quite bearish and ongoing concern about Greece is flaring up," said Matthew Turner, a metals analysts at Mitsubishi Corp. Mitsubishi analyst Matthew Turner. "We have got Bernanke speaking tomorrow, we have the ECB rate decision on Thursday and non-farm payrolls on Friday. So it's a data-packed week. You'd think the balance of the news would be gold-friendly… bad economic data and bad economies and loose monetary policy," Turner said.

"Precious metals are expected to trade higher this week and throughout this month as they recover from the late-Sept. selloff," said precious metals and energy analyst at MF Global Tom Pawlicki. "After a poor showing and high volatility in September, metals could recover this week due to favourable quarter-end seasonal patterns, the ongoing uncertainty in Europe, a developing economic slowdown in China, and from the increased potential of a double-dip recession in the U.S."

(Source: "Spot Gold Gains On Euro Debt Fears," Wall Street Journal, October 3, 2011; "PRECIOUS-Gold rises for third day after Greece rocks markets," Reuters, October 3, 2011; "PRECIOUS-Gold extends gains, equities drop on Europe debt fears," Reuters, October 3, 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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