The gold price rose slightly in early trading today, though price consolidation remains the likely short-term trend for this market. The June Comex gold contract settled at $1,493.60 on Friday – down $13.20 on the day. Gold and other precious metals were hurt by further relative strength in the US dollar. The US Dollar Index gained 0.69% on Friday, settling at 75.76, with the dollar reaching new six-weeks highs against the euro on the back of more press coverage of the Greek government’s fiscal plight.
Specifically, there appears to be a split between rival authorities on the best way to handle the Greek situation. The European Commission, International Monetary Fund and the German government are all said to be in favour of “soft-debt restructuring”, while France and the European Central Bank are reportedly against this, with the latter fearing the effects that any move to extend the maturity of Greek government bonds could have on the wider European bond market.
IMF chief Dominique Strauss-Kahn had been due to discuss these issues with eurozone finance ministers today and tomorrow, but his arrest in New York on a sexual assault charge on Saturday has added further complications and uncertainty to events. Ultimately, however, whatever the short-term arguments may be it seems certain that Greece will default on its debts at some point. This will deal another serious blow to the international banking community, while the political ramifications as far as the development of the European Union is concerned could be profound.
It’s not inconceivable that popular movements calling for the restoration of national currencies could arise in countries like Greece, Ireland, Portugal, Spain – and perhaps even Italy and France. Some of these countries could even end up leaving the EU in the event of political upheaval caused by serious economic deterioration.
But events across the Atlantic today could see investor attention switch, monetarily at least, away from Europe’s problems. Today is the day when the US Treasury Department will hit its $14.3 trillion borrowing limit, meaning that the US government is legally unable to borrow more money – though the Treasury says that “extraordinary measures” can keep the government funded until August 2.
As per the Obama administration’s wish, the debt ceiling will be raised, but opposition Republicans will attempt to force cuts in government spending in order to reduce the federal deficit (currently running at around $1.65 trillion). This could entail moves to sell government assets such as highways, power plants and national parks.
Some are even suggesting that America’s gold reserves should be sold in order to help solidify the federal government’s finances. There would no doubt be many willing buyers.
