AppId is over the quota The Street By Alix Steel February 9, 2012 NEW YORK
(TheStreet ) — Gold prices were popping higher after Greece secured a debt
deal and as the Bank of England pumped more money into the system. Gold for
April delivery was up $19.60 at $1,750.90 an ounce at the Comex division of the
New York Mercantile Exchange. The gold price has traded as high as $1,755.50 and
as low as $1,728.30 an ounce while the spot price was adding $16, according to
Kitco's gold index. Silver prices were 58 cents higher at $34.28 an ounce
while the U.S. dollar index was 0.26% lower at $78.49. Gold prices popped on the
news that Greece has secured a debt deal, which would implement austerity
measures and secure its second bailout of 130 billion euros. Gold were volatile
on the news initially popping, then giving back gains then moving firmly higher.
Once gold crossed the $1,750 its also possible that buy stops were triggered
where traders buy gold at this predetermined price. The question still remains
— is this enough to save Greece or will the country have to leave the euro.
The country still has to come to a bond swap deal with private bondholders and
the European Central Bank to help its debt load. On the one hand, if Greece is
forced to leave the euro the currency could rally, "it's like trimming the
cancer off," says Phil Streible, senior commodities broker at RJO Futures, and
would most likely support gold . Although if risk appetite returns in full
force, gold might be forgotten as a safe haven asset. If Greece leaves the euro
and all hell breaks loose and the euro plummets, gold could sink along with it
at least in the short term. Mario Draghi, head of the ECB, already said in a
press conference today that the economic outlook remains "uncertain" and
"downside risks remain." Also supporting gold was the news that the Bank of
England added to its quantitative easing program by 50 billion pounds bringing
the total to 325 billion pounds. The central bank left interested rates
unchanged at 0.5% while the European Central Bank left its rate at 1%. Gold
prices rose slowly after the news, but many experts had been expecting a bigger
pop in the price with central banks unabashedly pumping money into the system.
"The reality is is that it's all about the euro," says Streible, "with
the fragile state all of Europe is in right now, any sign of quantitative
easing, or QE, is probably too little at this point … more types of stimulus
plans means more spending cuts are soon to follow." More stimulus can trigger
a rush into gold as a hard asset, an alternative to the paper currency being
devalued, but austerity measures bring in the deflation worry, where gold tends
to selloff initially. Rick Trotman, senior research analyst at MLV & Co., thinks
that gold prices will do fine this year. "I don't expect a blockbuster year
but ending the year between $1,700-$1,800 an ounce is realistic." Trotman does
think that if Greece secures its second bailout and nails down a debt deal it
would really depend on how good or bad that deal is. "If everyone is really
happy with it, gold could trade down," he says, "but if it looks good then
Portugal will decide to step up to the plate as well hoping to get a really good
deal and gold would trade up on that." Trotman also says gold will start
looking to the U.S. presidential elections in November. Trotman suggests that if
the polls keep leaning towards President Obama that that would be good for gold
as "Democrats would spend a lot of money," as the dollar is devalued gold
rises in response. "A Republican President would be bad for the price of gold
," asserts Trotman. James Steel, analyst at HSBC in a recent 2012 gold outlook
report says that it's not just the U.S. going through an election cycle.
"The political process will result in the election or selection of a hose of
leaders in countries that represent more than 50% of the world's GDP." The
political upheaval ranges from the U.S. to France to Egypt to Russia.
"Uncertainty about changes in government may boost safe-haven demand for gold
, in our view." Another wild card playing out for gold Thursday was the news
that inflation in China rose to a three month high at 4.5%. The higher reading
is good for gold as it might push consumers into buying the precious metal as a
safer place to invest as real interest rates are a negative 1%. However, the
higher reading might also confirm the central bank's reluctance to lower
interest rates, to firmly commit to a loose monetary policy. China has been
pushing its banks to lend more into order to avoid a hard landing, or strong
slowing of growth. M2 supply in the country, cash in circulation plus savings,
checking and any travelers checks, grew 13.6% at the end of 2011 to 85.16
trillion yuan. This trend will need to continue to support strong gold buying.
The country imported 427 tons of gold in 2011 and consumed 787 tons. Gold mining
stocks were rallying Thursday. Barrick Gold was up more than 1% at $49.64 while
Newmont Mining was 0.64% higher at $61.90. Other gold stocks, Gold corp and
Yamana Gold were trading higher at $47.63 and $16.676 respectively. View the
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