, IncSpot Price of Gold Lower on Euro Insecurity
January 25, 2012 - As Greece failed this week to secure a deal with bondholders to borrow at a reduced rate, the latest in a series of failed deals that have added to the woes of the European country’s situation, the spot price of gold drifted lower on the weakness of the Euro. Private lenders now have a more influential role in determining whether Greece will face a hard default, thus exposing other European nations to serious risk of default themselves. While gold has performed very strongly since the New Year based on market fundamentals alone, at times posting double digit gains in only a few trading sessions, the latest debacle in Europe has put a damper on the Euro in currency markets, which is weighing down the price of gold today.
Already, however, investors who were sluggish to get in on the end of the correction in December have begun a bargain-buying rush into gold, providing some resistance on the downside. The current effect of the Euro’s weakness, which translates to the American dollar, will end will be very short-lived, making the short-term bet on gold a good one. It’s possible the price could be depressed until the end of next week and the effects of current trading will probably be felt into next week, but these are all signs of a healthy market that has strong fundamentals propelling it to the upside.
Often, investors and speculators misunderstand the movement of the market in response to the latest out of Europe. In the markets, nothing happens instantly and everything happens instantly. While the failure of bondholders to reassure investors has contributed to the plagues of the troubled economy, it will also provide a flight to gold as even more money flees to gold as a safe haven asset. First, however, the money must first move through the currency markets, which temporarily provides an adverse effect on the price of gold. In plain English, the deal fell through and that hit the Euro hard. The price of gold fell with the Euro. This provides an opportunity for buying before the price balances out. Hence the term, “buy the dip.”
The spot price of gold reflects this trend right now. Buying has resumed its hot streak in China and India, the largest gold markets on the planet who happen to be more insulated, ideologically and economically, from the European problem. Within the week, the same trend will be occurring in the West and the spot price of gold will reflect the move upwards and back into primary upward price-trends.
Stewart Lawson
Senior Staff Writer - GoldPrice.net
