Gold Pressured by Stronger Dollar on Renewed Concerns of Greece Default

Posted on: February 16, 2012

Gold prices are consolidating on the New York Spot Market, pressured by a stronger dollar after European leaders delayed a decision on Greece’s next installment of bailout funds. Also this morning, Moody’s Investors Service warned it may cut the credit ratings of 17 global and 114 European financial institutions, fueling concern that the impact of the Eurozone debt crisis is spreading throughout the global financial system. Moody’s cut the ratings of six European nations last Monday, including Italy, Spain and Portugal. It also warned it could strip France, Britain and Austria of their top-level AAA grade.

Meanwhile, European officials’ decision regarding Greece helped reignite concerns that the country may still be headed for a chaotic default and furthered a slide in the euro to a three-week low against the U.S. greenback. A strong dollar tends to weigh on gold prices by making dollar-priced commodities more expensive for holders of other currencies. According to Reuters, European ministers are unconvinced that all of Greece’s political leaders are fully behind the austerity reforms required for the next installment of bailout funds.

An industry report from the World Gold Council showed that demand for gold struck a 14-year high in 2011, driven by record investment, buying in China and central bank purchases, which hit their highest level in at least 40 years. The report also forecast that China could overtake India this year as the world’s top consumer of the yellow metal. “(We are) sticking our neck out a bit and suggesting that 2012 will be the first year that China does exceed India in terms of tonnage demand,” WGC managing director for investment, Marcus Grubb, told Reuters.

Gold prices are up 10 percent for the year, and several analysts and financial institutions such as Credit Suisse and JP Morgan expect higher prices by year-end and into 2013. Barclays’ Capital forecasts $2,000 gold and $35 silver in 2012. BNP Paribas was the latest to hike its estimates, announcing a forecast this morning for gold to average $2,225 to $2,150 in 2013.