Last week all eyes were on Greece again as an agreement in line with the ISDA on the beleaguered country’s debt sent the spot price in the gold market soaring. Greece has been the most publicized of all European countries with sovereign debt problems on their balance sheets. Greece previously received a bailout package from Germany, the European country with the strongest industrial and manufacturing base, but this gesture for the integrity of the Euro was incredibly unpopular domestically in Germany and further assistance has carried several severe austerity measures to insure the investment.
Last week’s agreement on the use of CAC on Greek debt was the final measure the ISDA, a committee of bankers, had been waiting for in order to proceed. Immediately, the spot price of gold surged $40 per ounce. Gold has been making steady ground gaining its way over $1,700 an ounce after a tacit announcement concerning a third round of Quantitative Easing last week brought the price down as much as $100 per ounce. This extremely low level was not reflective of the demand in the market and so was very unsustainable.
The gold market has been waiting for a good reason to pop back and today’s deal on Greek debt amounts to that. While financial markets in the West have been playing out the motions of a delayed Quantitative Easing program, buying demand for gold in the East has continued at all-time record highs. The two biggest markets for gold on the planet, India and China, have been buying gold with increased frequency on the dip.
The fundamentals are returning to the market with the spot price of gold again over $1,700 per ounce. Of course, further decreases in price are always possible, but absent a foreign stimulus, the market has intact fundamentals for much higher pricing. Citigroup this week released a report raising and lengthening its projection for the price of gold, placing gold at $2,400 an ounce within the year. Persistent low interest rates and continued inflationary policies at the Federal Reserve present the best fundamental dynamic for gold breaching its all-time nominal high of $1,922 per ounce realized on September 6, 2011.
The latest debt deal out of Greece is a sign that the Mediterranean country is limping forward, but that the gold market has been waiting to burst out and open and today’s increase is just the beginning.
Senior Staff Writer – Certified Gold Exchange