Gold and Precious Metals

Today’s Discussion

February 22, 2012

Gold reached its highest level in about two weeks
yesterday, reaching an intraday high of nearly $1760. Spot prices have pulled
back by about $5 this morning, with gold trading at $1755. Initial optimism
toward the Greek bailout package has quickly turned sour, as traders weigh the facts
regarding the long term prospects for Greece and the European Union.

The latest Greek bailout totals €130 billion ($172
billion), while the first aid package in 2010 was €110 billion ($146 billion). This
time around, private bondholders will also forgive €107 billion in Greek debt.
Meanwhile, the nation’s debt-to-GDP ratio reached 160% in the fourth quarter of
2011. Clearly, investors have reason to be concerned that we will see Greece
back at the table in the not-too-distant future.

It would appear all too likely that Greece’s only
viable solution is an exit from the Euro, although that would come with its own
set of challenges as well. What this would mean for gold would be a short-term
decline if the Dollar rallies as a safe-haven. Over the long run, however, gold
should benefit from the general shake-up in fiat currencies.