Gold and Silver Rise as Greek Politicians Choose Between Austerity or Dignity

By: Ben_Traynor

THE PRICE to buy gold rose to $1510 an ounce Wednesday morning London time – a 0.5% gain on the week – while stocks and commodities also gained and US Treasury bonds fell ahead of the Greek austerity vote.

The price to buy silver climbed too, hitting $34.49 an ounce – also 0.5% up for the week.

"Activity picked up this morning" in Asian trade, according to one Hong Kong bullion dealer, who says the market is "cautiously upbeat" on account of recovering risk appetite.

"Market participants are generally positive on gold," agrees Yingxi Yu, commodities analyst at Barclays Capital. Yingxi questions, however, whether now is the right time to buy gold "given the volatility in risky assets such as equities and oil".

"People are not keen to go short, but we don't see a rush to buy gold either because it is the low season," adds a gold bullion dealer in Singapore.

Greek politicians were expected to approve austerity measures on Wednesday, in spite of protests in Athens. A so-called rebel from the ruling socialist PASOK party has now signaled he will back the measures.

"I have made the decision to vote for the plan because national interests are more important than our own dignity," Thomas Robopoulos told Reuters on Wednesday.

"A positive vote in Greece today...would remove a significant risk in the near term," says Olivia Frieser, analyst at BNP Paribas in London.

"But the Greek issue will be a chronic one, so we wouldn't get overly carried away on the news."

A memo from the Fédération Bancaire Française – dated Friday and leaked on Tuesday – proposes a scheme whereby holders of maturing Greek bonds agree to roll over at least 70% of the principal, in return for 30-year Greek government bonds and guarantees from a newly-created special purpose vehicle.

The stated aim of the French proposal – reminiscent of the Brady Bonds created in the wake of the 1980s Latin American debt crisis – is "to prevent a credit event" on Greek credit default swaps. Such an event would trigger a default rating from ratings agencies.

Over in Washington meantime, French finance minister Christine Lagarde was appointed Tuesday evening as managing director of the International Monetary Fund.

"There is no room for benevolence when tough choices must be made," Lagarde said earlier this month in her interview for the post, referring to Greece. 

Lagarde has previously suggested that the European Stability Mechanism – which from 2013 will become the Eurozone's permanent bailout mechanism – should be rated AAA by ratings agencies.

Back in Europe, European Central Bank president Jean-Claude Trichet said Tuesday that the ECB is "in strong vigilance mode" – widely believed to be a hint that the central bank will raise interest rates next week.

"We're taking the decision progressively to anchor inflation expectations," said Trichet.

"The European economy is strong enough to get the ECB raising rates," says Joseph Capurso, currency strategist at Commonwealth Bank of Australia in Sydney.

"We hear a lot about Greece [but] it's really just a lot of noise...the Euro's got a bit more upside from here."

The price to buy gold in Euros dipped slightly on Wednesday morning in London, falling to €33,622 per kilogram (€1046 per ounce) – 0.2% above Tuesday's one-month low.

"The gold market may not have dropped enough to invite substantial emerging market and safe haven buying to emerge," reckons James Steel, precious metals analyst at HSBC.

"Longer term, we remain bullish," Steel adds, citing recent strength in the Swiss Franc as evidence of safe haven buying "that could easily shift into gold".

Demand for physical bullion "remains supportive of gold" says Marc Ground, commodities strategist at Standard Bank, who adds that, tactically, investors should buy gold below $1530 per ounce.

"Strategically, our view remains the same – stay long gold."

By Ben Traynor
BullionVault.com

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

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