Gold drifted 1.6 percent lower in trading on Friday, but ended the week up 1.3 percent, highlighting the popularity of buying gold in the New Year. Posted by James Randolph on January 17, 2012
Buying Gold and the Default of Greece
January 17, 2012 – Gold drifted 1.6 percent lower in trading on Friday, but ended the week up 1.3 percent, highlighting the popularity of buying gold in the New Year. Gold has risen 5% so far in 2012 and is on course to rise much higher still. Many of the losses that were experienced in the December correction have already been regained and confidence in the gold market has already been satisfactorily restored, particularly last week when gold breached the 200 day moving average to settle high in the $1,640 range.
Today, as expected, news has begun to seep out of Europe once again concerning the sovereign debt crisis. We are looking at a situation that will definitely impact the gold market, though it is a question as to when this action will happen. The head of sovereign ratings at S&P said he believes Greece will default in short amount of time. There are several important deadlines in the next two to three months that indicate a window in which problems in Greece are more likely to reach a point of maturation.
Most investors have already seen the safe haven power of gold in the New Year, though it is a difficult statistic to quantify. The global geopolitical situation has been precarious at best, if not comparable to tip-toeing through a minefield. The European problem, its effect on banking institutions in America, and the continued and intensified shouting match between Iran, its allies, and the Western powers have all contributed to a particularly loaded global stage. In response, investor sentiment has been murky in most markets, with gold alone shining above the rest.
And buying gold makes sense in such an environment. Little can be counted on in the coming months and investors are all too aware of it. Putting your money in any market is a questionable act right now. Jamie Dimon himself has said in an interview with the Italian newspaper Milan Finanza that as the CEO of JP Morgan his company could lose up to $5 billion from the bank’s exposure to the PIIGS countries. This is significant as American markets are still reeling from the collapse of MF Global, which was instigated by a bad bet on European debt that was made with, of all things, customer money.
For the next weeks and months, all eyes will be on Europe and any potentiality of Greek defaulting. The shock of a default to the Euro, the shock of Germany or other Northern European countries pulling out of the Euro, and the shock of a coercive restructuring of the European banks will all weaken fiat currencies against the price of gold, creating a surge unlike anything we’ve yet seen. It will also spur the biggest rush of safe-haven gold buying in modern history.
Senior Staff Writer – Certified Gold Exchange