GOLD PRICE NEWS - The gold price rose $5 to $1,125 this morning as gold was buoyed by renewed concerns over Greece’s fiscal situation. While the gold price has generally moved in lockstep with the euro over the past several years, in recent months its correlation versus both the euro and other fiat currencies has waned. This morning’s developments further illustrated this trend, as the gold price rallied in spite of a 0.4% drop in the euro to 1.368 against the U.S. dollar.
The main catalyst for gold price strength and weakness in the euro were comments from Michael Meister, a policymaker aligned with Chancellor Angela Merkel’s Christian Democratic Union, who stated in an interview in Berlin that Greece should look to the International Monetary Fund (IMF) if it needs aid. Meister stated that attempting to bailout Greece “without the IMF would be a very daring experiment…Nobody apart from the IMF has these instruments.”
Mr. Meister’s view contradicted comments from many of Europe’s high-ranking officials - such as European Central Bank President Jean- Claude Trichet and French President Nicolas Sarkozy - who have stated that Greece should look to resolve its financial issues internally while officials consider establishing a European Monetary Fund.
Meister’s comments helped to spur a 3% sell-off in Greece’s ASI Index, its leading index of stocks. Credit default swaps on Greek sovereign debt widened by 7 basis points to 295, its highest level in a week. The spread between Greek bond yields and German bunds widened as well, indicating a rise in risk aversion over the relative safety of debt securities in Greece versus those in Germany.
Greek Prime Minister George Papandreou established a deadline of next week for the European Union to develop a financial aid package for Greece, further challenging Germany to relinquish its hesitancy over a rescue plan. Papandreou stated that if European leaders are unable to agree to a lending facility at a summit on March 25-26, Greece may turn to the IMF to assist with the debt crisis.
These latest developments only added to the growing uncertainty surrounding sovereign debt concerns in Greece. They also showed the lack of coordination on the part of European policymakers, and the inherent challenges of trying to govern disparate nations with a single monetary policy - one of the chief criticisms of the European Union.
As has been evident over the past decade, the gold price has benefited in times of uncertainty, and the ongoing problems in Greece, across Europe, and the negative implications on the euro should only help to support the gold price.
