Gold and Silver After the Greek Elections

Optimism in the markets following Greek elections has been exuberant, which has had an adverse effect on gold and silver prices, but the exuberance will most likely be short-lived.

The political party in favor of a bailout won elections in Greece, which calmed fears about a Greek exit from the Eurozone and the European Monetary Union. The response in currency markets was prompt and strong Sunday evening with the Euro popping over 50 bps at the start of trading, bringing the Euro to a one-month high against the US Dollar.

Gold fell Monday for the first time in seven sessions on the decreased risk of a Greek exit, a direct reflection of the safe-haven appeal in precious metals. Gold fell more than one percent to a low $1,606.49 per troy ounce in intraday trading, later recovering to $1,621.60 per troy ounce, but still down $6.19.

The optimism from the Greek polling is expected to subside quickly, however, partially due to similar debt problems in both Italy and Spain, according to Reuters. Spain has received fiscal intervention from the EU and Italy has a very troublesome balance sheet and a very troubling debt-to-GDP ratio, making the temporary agreements in Greece relatively insubstantial compared to the macroeconomic situation.

The panic buying in gold and silver has dropped out temporarily on the draw of larger returns in riskier markets and the perceived lack of risk in Europe. The gold market, according to Reuters, “is oversupplied by at least 400 tonnes this year,” though that figure can change dramatically with the least development out of Europe.

Safe haven asset buying, as opposed to panic buying, remains strong, but will necessarily be more subtle and more pervasive in effect. The drive to safe haven assets may not register on balance sheets with a surge in spot price, but it is certainly a part of our market that will be with us for some time. Currently, while markets appear to be satisfied with the status of Europe and market news appears to be in a summer state of mind, the prices of gold and silver may make for very lucrative entry points.

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