Greek Uncertainty Taints Markets
Gold has been tugged first one way and then another this week, as optimism over a Greek austerity and debt package settlement earlier in the week turned to consternation in all markets by Friday when unrest, general strikes, and cabinet resignations hit the streets of Athens.
Stronger than expected economic news from the United States helped stocks mid week, as gold’s recent shine tarnished. The four-week average jobless claims number fell to a near three month low (366,000), and wholesale inventories rising by 1%, the strongest for three months. This prompted gold’s end of week retreat, which was then accelerated by Friday’s shenanigans in Greece.
At the front end of the week, equity markets had started optimistic for a Greek settlement, and prompted gold to push up from last week’s closing level. Reports had said that Greece was near agreement on austerity measures and cutting a deal with its private creditors. The ‘troika’ of the ECB, European Union, and IMF, has insisted that this is necessary in order for the country to receive€130 billion bailout funds in March.
On Thursday, the ECB President, Mario Draghi, announced that the Greek Prime Minister had informed him that the Greek political parties had agreed the austerity measures and struck the necessary deal with its private creditors. However, European Finance ministers would not agree to the bailout funding being passed over unless the Greek austerity measures were put into law. Gold recovered with the news as investors began to switch funds.
However, when it came to the crunch on Friday, four Greek ministers resigned, unable to support laws that would see further massive cuts in public spending, tax rises, and a cut in the minimum wage. The financial world now waits for news on Monday from Greece. If the measures are not passed into law by the Greek parliament, then the country will not have time to meet its debt obligations on March 20th. Such a bankruptcy will send shivers through financial markets.
Gold ended the week at $1717.10 an ounce, a touch below last week’s close of $1725.
On Monday, President Obama goes to Congress to spell out his budget for this year. This is expected to point to a budget deficit of $1.3 trillion, and call for huge infrastructure spending and rises in taxes on high-income earners.
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