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Gold prices rallied on Tuesday following the announcement that a debt deal had been reached with Greece. New York gold hit a high of $1,759.95 on Tuesday trading.
By Michelle Smith — Exclusive to Gold Investing News
North America awoke to find that a historic debt deal had been reached: Greece is set to receive a massive $173 billion (130 billion euro) rescue package. Gold, at $1,734 on Monday, hit the ground running this morning. The metal was up to nearly $1,746 by 9am EST, and closed the day with strong gains.
For weeks, markets have been reacting to Greek headlines. The announcement that a deal had been reached prompted a positive response in Europe and North America. European equities rose, and the region’s shared currency strengthened. US and Canadian equities rose, and though the US dollar was down, that fared well for gold, which broke free from the restraints of Greek uncertainty.
Equity investors in both the US and Europe displayed an increased appetite for risk, but by the end of trading in both regions, some of the gains were returned. Though Europe has agreed to throw Greece another lifeline, it appears that investors were relieved, but not duped. The markets seem to know that this deal, though sizable and unprecedented, is still overwhelmingly colored with a variety of risks. Among them is the possibility that Greece will default in the future.
The markets are full of skepticism about a Greek rebound. This deal, though preventing an immediate default, is largely viewed as a patch that blatantly fails to be a repair. There is concern that the Greek government may not even be able to implement all of the conditions that are attached to the bailout funds, such as further budget cuts and reforms to bring in more tax revenues.
Another of the strings attached to this bailout is continual monitoring by the troika. The European Commission, International Monetary Fund, and European Central Bank have essentially decided to hover over Greek officials to ensure that they meet their commitments. The protests that were witnessed ahead of the deal are a clear indication of Greek sentiment.
There are concerns that further austerity, compounded by this type of monitoring, will further inflame the Greek people, aggravating what skeptics already worry is an environment where pressure on the government could heighten the risks of uncertainty.
But today, potential backlash from Greek citizens and the cautious skepticism of their European neighbors did not dampen the gold market.
The Chicago Fed National Activity Index provides a gauge for economic activity and related inflationary pressure in the US. The data it released today took a swipe at gold, but was tossed aside as the metal’s upward momentum was too strong. Furthermore, though the index fell from +.54 to +.22, anything above zero is considered an indication of above average growth.
China is also credited for giving gold a boost this week. Over the weekend, the government eased bank reserve requirements. While this could be considered a sign of an economic slowdown, the flip side is that it represents a stimulus of sorts because it frees up cash for lending.
The close
According to CME Group, the big question for many gold traders is whether or not optimism toward the EU will have a long shelf life. But even those concerns were not enough to overshadow gold’s rally throughout the US trading day.
The COMEX April 12 gold contract traded between $1,727 and $1,759.50. The session closed with the contract at $1,757.40, gripping impressive gains of $31.40.
New York gold spot prices closed up $29.76 at $1,755.66 and traded at a high of $1,759.95
Good news for Greece proved positive for gold miners listed on both US and Canadian stock exchanges. According to the last report before this article goes to press, gold miners on the Toronto Stock Exchange were gleaming.
Securities Disclosure: I, Michelle Smith, hold no direct investment interest in any company mentioned in this article.