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Optimism for Greece Sends Euro and Gold Higher

Release Date: 
Thursday, March 8, 2012

Gold moved higher as optimism improved for a successful Greek bond restructuring required for the nation to avoid default. The news pushed the euro higher against the U.S. dollar. Gold was also higher at $1700.90 per ounce at 5:52 a.m. Pacific Time on the New York Spot Market with silver at $33.95 per ounce.

Approximately 60% of eligible bond holders of Greek debt have indicated they will participate in the debt swap required for Greece to avoid default. The European Central Bank (ECB) kept its key lending rate unchanged at 1%, as expected. Given these developments, "attention can be expected to focus more on the subsequent press conference and statements by [ECB President] Draghi, especially concerning the expansion of liquidity," analysts at Commerzbank said in a note. "Fears of rising inflation and low rates of interest long-term should have a positive impact on the gold price," Commerzbank said.

"We're in a strong bull market that is taking a rest right now," said Charlie Morris, head of absolute return at HSBC Global Asset Management, told CNBC. Low interest rates and high demand are the key drivers of the gold price at the moment, he said. Morris believes the best sign for gold prices is the Dow/gold ratio — the number of gold ounces it would take to buy a share of the Dow Jones Index.

"Is the gold price outperforming equities? That's been true since 2002 and is true today," Morris said. "The whole reason gold is brilliant (compared to other commodities) is that it has an above-ground store and all the gold that has been mined in history is still here."

(Sources: "Gold's Rise Will Go on Long-Term: Investors," CNBC, March 8, 2012; "Gold rises ahead of Greece debt deal," MarketWatch, March 8, 2012; "PRECIOUS-Gold edges up as Greece hopes lift sentiment," Reuters, March 8, 2012; "Gold Advances for Second Day as Weakening Dollar May Fuel Investor Demand," Bloomberg, March 8, 2012)

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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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