Wild Ride For Gold This Week

Posted: Feb 06, 2012 12:01 AM

It’s hard to believe gold was actually down on the week, starting out in the $1,730 range and ending the week at $1,723 an ounce. 

It was a wild ride with gold hitting a low of $1,716.50 on Monday and a high of $1,763.01 later in the week.  With that kind of a ride up it’s really no surprise to see a sharp drop on profit-taking late Friday. 

The factors facing gold next week are going to be the headwind of a strengthening U.S. economy and dollar, balanced out by a new round of concern surrounding Greece. 

This time Athens is back in the news as negotiations with international creditors on yet another bailout stalled on the question of labor reforms.  The creditors still want austerity measures applied to wages and pensions; the Greek government, still able to detect a distant whiff of teargas left over from the last round of riots, is somewhat hesitant to agree on that point and it’s not clear if they could deliver if they did. 

The problem for Greece is the timing of the bond payment, which is due March 20, just before the general elections in April.  If the Greek government caves on labor reforms, it will almost certainly be voted out two months from now.  Rock, meet hard place. 

My question is how long can the European Union let the situation with Greece stagger on?  The entire Euro-zone is being dragged down by a country the size of Colorado.  It’s absolutely crazy that the European Central Bank has already purchased 219 billion euros of Greek debt since 2010. 

Like an indulgent parent, the ECB just keeps shoveling cash to Greece which allows them to then keep being irresponsible with their national budget.  Now the Europeans are stuck in a classic management entrapment situation:  Do they pony up another 19 billion euros in March and hope Greece recovers enough to some day pay them back?  Or do they just write off a quarter billion euros and move along?  I know what I’d do, but it’s not my call. 

That’s the stage for gold trading this week.  Good news from the U.S. meets imminent disaster for Europe.  Expect another wild ride for precious metals this week, with the Greek government desperate to find a way to kick the can down the road until after April. 

In the absence of major news, I’m expecting gold prices to stay in the range between $1,710 and $1,750 but, if Greece defaults, then all the technical analysis goes out the window and we could see gold prices surge. 

Chris Poindexter, Senior Writer, National Gold Group, Inc