Gold Price Drops Following Greek Bailout Deal; US Stocks Gain

Eurozone officials struck a third bailout deal with Greece on Monday in a bid to keep the near-bankrupt Mediterranean country in the Eurozone. However, while the third time could be the charm, the agreement comes with strict terms and could take several weeks to draft. 
After more than 17 hours of negotiations, Eurozone leaders and Greece agreed on the US$96-billion bailout program under the European Stability Mechanism; it will require Greece to pass four key legislations in its parliament by July 15. The conditions include streamlining the value-added tax, broadening the tax base, making key changes to the country’s pension system and making spending cuts. The deal will also see the Greek government’s assets become privatized, creating a fund of US$54.1 billion that will recapitalize the nation’s banks and invest in its economy.
The deal likely came as a surprise to Greek citizens, as 61 percent voted “no” to the bailout in a much-anticipated referendum just last week. The vote followed a speech from Greek Prime Minister Alexis Tsipras urging residents to “say a big ‘no’ to ultimatums, ‘no’ to blackmail.”
As mentioned, this is the third attempt to avoid the Grexit. According to The Wall Street Journal, many economists and policymakers have criticized the previous bailouts, noting that forecasts for growth, tax revenues and privatization revenues were overly optimistic. This new program has also already received its fair share of backlash, with some economists even suggesting the stricter program will be worse.
“It’s just a continuation of failed policy packages, and if anything it’s worse,” Charles Wyplosz, professor of economics at the Graduate Institute of International Studies, Geneva, told the news outlet. “It hasn’t worked, it won’t work.”

Gold price slips following announcement

News of the bailout put downward pressure on the spot gold price, which hit a low of $1,149.60 per ounce on Monday. It later rose back up to US$1,156.10. Meanwhile, COMEX gold for August delivery fell by $2.50, or 0.2 percent, to hit $1,155.40 per ounce. That’s its lowest price since July 7, when it hit a three-and-a-half-month low.
The yellow metal is typically used as an alternative investment amid financial and economic uncertainty, but with the US Fed interest rate hike looming and the appreciation of the US dollar, gold hasn’t performed accordingly. “Gold has failed to perform throughout the crisis, while the expectation for a rate hike in the U.S. has gone on for so long that the gold price is now close to the cost of production,” Sharps Pixley CEO Ross Norman told Reuters.

US stocks react favorably

While the gold price didn’t react favorably to the news out of Greece, US stocks saw some measurable gains. In fact, at end of day Monday, the Dow Jones Industrial Average was up by 217 points, or 1.2 percent, at 17,978 points, while the S&P 500 index (INDEXSP:.INX) was up by 23 points, or 1.1 percent, at 2,100 points. The NASDAQ Composite index (INDEXNASDAQ:.IXIC) saw the biggest boost, rising 74 points, or 1.5 percent, to reach 5,072 points.
European stocks also experienced some increases, with the German DAX going up by 1.5 percent and France’s CAC 40 (INDEXEURO:PX1) gaining 1.9 percent.
 
Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article. 
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Gold Price Edges Up as Greece Votes “No”