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Pro-Eurozone Greek Party Wins Election

Release Date: 
Monday, June 18, 2012

Gold prices were lower on Monday following the election in Greece, won narrowly by the party that favors Greece staying in the Eurozone.  Gold was $3.00 lower at 7:59 a.m. Pacific Time on the New York Spot market, trading at $1,624.70 per ounce. Spot silver was unchanged trading at $28.84 per ounce. (Click here for the most current spot prices.)

The victorious, pro-austerity New Democracy party in Greece must still form a workable coalition government and convince Greece's partners in the Eurozone that it has the fiscal discipline to meet its obligations.

"Gold is not profiting from the more positive market sentiment at the start of the new week, but is actually falling, contrary to the trend on the commodities and equity markets," analysts at Commerzbank said in a note. "That said, this is typical behavior for a safe haven. The Greek saga will continue despite the election having produced the outcome desired by the markets, however, so demand for the yellow metal can be expected to remain in the future."

Attention will now turn to this week's monetary policy meeting of the Federal Open Market Committee (FOMC) and the response to the Greek election could potentially affect the FOMC decision, Barclays Capital said in a note.

"(We) now expect the FOMC to ease policy further and see a short-term extension of (stimulus program) Operation Twist as the most likely outcome," analysts at Barclays said. "(That) would give the Fed a few more months to sort out whether the recent softness in data is ... payback for the warm winter weather or a more prolonged slowdown." They added, "if the latter is the case, then more outright asset purchases that expand the balance sheet (QE3) would become likely."

HSBC said, "the possibility that the Federal Reserve and other central banks may loosen monetary policy later this year ... is potentially supportive of gold, in our view. Government policies aimed at keeping real interest rates negative are especially positive for gold," HSBC said in a note. The bank expects gold to rise above $1,900 by year’s end, "based on the likely impact of easy monetary policy."

Despite the outcome of the elections in Greece, a survey of central bank reserve managers predicte that at least one nation will leave the eurozone in the next five years. "The underlying problems facing the euro zone are still very much present," said Marc Ground, a metals analyst with Standard Bank.

(Source: "Gold slips following Greek election," MarketWatch, June 18, 2012; "PRECIOUS METALS: Gold Recedes on Worries About Spain," Wall Street Journal, June 18, 2012; "Gold eases after Greek vote, caution underpins," Reuters, June 18, 2012; "Central Bankers Brace for Euro Break-Up," CNBC, June 14, 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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