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Gold: Trump Card In Greek crisis

Monday, June 27, 2011

prithviraj kothari
Managing Director, RSBL and current president Bombay Bullion Association, (BBA)

The price of gold is slowly rising ahead of the Greek confidence vote on Tuesday.

Global  equities  closed  positive  as  investors  gained  confidence  over  the  win  of a confidence vote  by  the  Greek  parliament. From Greece, there are positive signs after the cabinet of Prime Minister George Papandreou won the voting for the trust. This is one step closer to solving the debt crisis of Greece.
The spot market U.S. dollar gold price fell to $1542 per ounce late Wednesday morning in London - still a touch above where it started the week, and 2.2% off  last  month's  record  high  (but  was  edging  up  again)  -  while  commodities fell and stocks were mixed after Greece's prime minister survived a confidence vote.

Gold was seen trading at $1,544.31/oz, €1,072.96/oz and £957.30/oz.  Gold  is  lower  in  dollars  but  higher  in  euros  and  has  reached  new  record  highs in pounds  sterling  at  £958.25/oz.  Gold is being supported by strong and increasing demand internationally.

Sources have reported that Greek citizens are emptying savings accounts and  buying gold as they brace themselves for the possibility of a sovereign default and a run on the banks. Sales of gold coins have soared as savers seek a safer and fungible source of value. When the global financial crisis started, sales of coins  to  investors  overtook  bullion  for  the  first  time  and  now  the  sales  ratio has reached five to one.

The  trend  of  buying  gold  during  times  of  crisis  is  seen  again  as  it  was  seen  during the two World Wars.  People have started buying gold and keeping at home the way their grandparents did. Today, those buying gold and silver are increasingly protected due to the floor being put under precious metal prices due to Indian, Chinese and Asian public and central bank buying of gold.

Gold was seen playing trump card as compared to other commodities. Oil was hit and silver did not increase comparatively.

Keep in mind that this is occurring during the summer, not a time in which one generally expects to see a very strong gold market. A grinding move higher during this time frame would set this market up for a move to a fresh all time high later this year when the seasonally stronger period of the metal arrives. This just further underscores how currency concerns are moving gold as distrust in paper currencies continues to increase. Gold is signalling investors' lack of confidence in their monetary authorities and political leaders.

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