Gold News: COMEX gold futures rallied $11 to $1,077 on Greece bailout rumors. Securities linked to the price of gold - such as gold ETFs, gold stocks, and gold bullion - benefitted from the increased likelihood of further currency debasement across the globe. The gold price experienced one of its best days of 2010 while the U.S. Dollar Index (DXY) fell 0.6% to 79.786 - its largest decline in three weeks. In today’s trading session, gold reached an intraday high near $1,079.50 after the release of a Reuters report that Euro Zone governments had decided in principle to assist Greece - citing a senior German Ruling Coalition source. Soon thereafter, however, Reuters announced that a spokesman for the German government called the report about a decision on aid for Greece “unfounded.”

Despite the retraction of the Greece bailout report, the news fueled gains in gold stocks, commodities, and the euro currency, in addition to the price of gold. The euro - which has come under enormous pressure over the past two months on sovereign debt concerns across Europe – rallied 1% to 1.3786 against the dollar as market participants began to unwind some of the record $8 billion in short positions against the European Union currency. The gold price, which has displayed a relatively strong correlation to the euro over the past several years, also benefited from weakness in the dollar subsequent to the Greece bailout news.

While policymakers across Europe have refuted speculation of an imminent bailout of Greece, they did not go so far as to deny one, however. The swelling deficit in Greece, along with rising yields on Greek bonds, has forced the European Union to weigh the long-term burden of a bailout versus allowing the nation to default. Many economists and investors have speculated, however, that a Greek default could lead to a cascade of sovereign debt defaults in the other European “PIIGS” countries - namely, Portugal, Ireland, Italy, and Spain.

While the focus is on Greece at present, mounting government deficits is a global phenomenon that has escalated to grand proportions, a decades-old trend that began when the United States abandoned the gold standard. While gold has benefitted significantly from the fiat currency debasement concurrent with rising deficits, the global economy is now suffering repercussions from years of reckless fiscal and monetary policies. The far-reaching implications of these developments were recently expounded on by famed gold bull and Dow Theory Letters author Richard Russell, who wrote:

“When the US jettisoned the gold standard in 1971, the rest of the world followed and abandoned the discipline of the gold standard. This allowed the central banks to print their own currencies at will and in any amount they wished. The money thus created was spent, the West became highly-leveraged, bubbles were created, and at the same time debt climbed to unsustainable proportions.

The ’unintended consequences’ of the Fed’s battle against the primary bear trend has been the building of the greatest edifice of debt in human history. How the US will deal with that debt will be the story of the next few generations and the next few administrations and Congresses.”