Gold performed strongly last week, capping it off by a rally to nearly US$1,160/oz after it was reported that new home sales in the US jumped 27% in March, boosting demand for riskier assets such as precious metals.
Prior to that, gold was bolstered by Greece’s decision to request financial aid from other euro zone states and the International Monetary Fund (IMF), which had earlier agreed on a €45 billion bailout package for the debt-stricken country.
The decision was triggered by an update from the EU’s stats agency Eurostat, which said that Greece’s budget deficit in 2009 amounted to 13.6% of the GDP, while the previous estimate had it at 12.9%. Moody’s then moved to downgrade Greece’s sovereign rating to A3 from A2 after Fitch cut it from BBB+ to BBB- earlier this month, causing Greek ten year bond yields to go up to 8% and then nearly reach 9%, making it very expensive to raise money in the market.
Questions still remain as the EU, IMF and Greece are yet to agree on the terms of the loan facility. Greece’s request, however, provided an immediate relief for the euro, helping it to gains against the US dollar to lift gold.
The yellow metal is seen as an alternative investment to the greenback and usually moves inversely to the American currency.
Worries over the Goldman Sachs (NYSE:GS) fraud case, which also weighed on gold, eased when it was revealed that US Securities and Exchange Commission (SEC) voted along party lines to produce a 3:2 decision in favour of failing charges against the investment bank, which holds a substantial stake in the world’s largest gold-backed exchange fund SPDR Gold Trust (NYSE: GLD).
Gold pulled back to US$1,152/oz this morning, while other precious metals followed suit.
