GOLD PRICE NEWS - The gold price held near $1,150 per ounce as the U.S. dollar continued to rally versus the euro. In terms of the European currency, the gold price, at 864 euros, hit an all-time high this morning as European stock markets declined overnight on worries over the lack of details on a rescue package for Greece. Gold stocks were lower in pre-market activity after yesterday’s 2.9% surge, as measured by the Market Vectors Gold Miners ETF (GDX). The GDX hit its highest level since January 15 yesterday as gold stocks displayed their leverage to the gold price.
Greece’s benchmark ASX Index slid 5.2% overnight, the steepest drop in four months, and the Stoxx Europe 600 Index dropped 1.1%. The resurgence of concerns over Greece is evidenced by rising credit default swaps on government bonds, which illustrate the increasing cost to insure the debt of the financially-burdened country. The U.S. dollar and yen rallied and the gold price, which surged over $14 to close at $1,149.90 yesterday, dropped as investors and traders liquidated positions and raised cash.
The yield spread between German bunds and Greek government debt soared to 4.4% - the highest level since the inception of the euro in 1999. In a Bloomberg Radio interview, Richard Clarida, global strategic advisor at PIMCO, commented that even at yields above 7% Greece’s bonds would still not be “an attractive enough yield.”
Kenneth Rogoff, co-author of “This Time is Different: Eight centuries of Financial Crises,” sounded a further warning in today’s Financial Times about the massive build-up in government debt occurring across the globe. Rogoff noted that, “Even as published official government debt soars, huge off-balance sheet guarantees and borrowings remain hidden for political expedience around the world.” While not specifically calling for a rising gold price, Rogoff has repeatedly warned against reckless deficit spending and the eventual currency depreciation that follows. The rise in the gold price in terms of virtually every global currency is symptomatic of the decline in the confidence amongst paper currencies.
