Gold Up on Greek Optimism, China Easing

Posted on: February 20, 2012

Gold prices are climbing higher Monday on optimism that European leaders will sign off on a rescue deal for Greece, preventing a default that would have significant consequences for global markets. Gold prices, which are up nearly 11 percent this year, are also benefiting from the decision by China’s central bank to further loosen monetary policy by lowering reserve requirements – the amount of money banks must hold in reserve —to help spur lending and increase liquidity.

“The risks (in Europe) could dissipate modestly in the near term. Certainly, in China, there is a growing acceptance that the government will step in to support growth, and things look like they’re stronger than expected in the United States,” said Deutsche Bank analyst Daniel Brebner to Reuters. “Globally, it looks like risk assets are being accumulated by investors, and in that kind of environment, gold should perform reasonably well.”

Eurozone finance ministers convened in Brussels today where they are widely expected to approve a second bailout for Greece and put an end to months of uncertainty. French Finance Minister Francois Baroin told Reuters that all the elements were in place to reach an agreement and Greek Finance Minister Evangelos Venizelos said he expected a deal.

In contrast to today’s optimism, German finance minister Wolfgang Schäuble told The Telegraph that the austerity measures required as a part of the deal for Greece are so severe and have been met with such furor that he doubts any government would be able to implement them.  Further, The Telegraph is reporting Monday that a secret European Commission, Central and IMF report found even if Greece made good on its promises, it would not be able to reach the target of bringing total debt to 120 percent of GDP by 2020. Rumors are also circulating today that banks on Wall Street are preparing for a “credit event” – a technical term used by credit agencies to mean a default – in the days immediately following March 20, as Greece looks likely to be unable to meet its debts.

In other news, Malca-Amit Global Ltd., a Hong Kong- based company that stores and transports precious metals plans to open a vault in Beijing and is doubling space in Singapore as rising demand spurs gold’s 12th year of gains. China may become the world’s largest gold market this year, displacing India, according to the World Gold Council. “The whole point of owning gold or buying gold is that you’re buying a form of financial insurance,” said Mark O’Byrne, executive director of Dublin-based GoldCore Ltd., which stores customers’ bullion at the Perth Mint in Western Australia and in a depositary in Switzerland. “You need to own gold in the safest way possible in order to reduce counterparty risk.”