Gold Holds In Narrow Range

Posted: Feb 16, 2012 12:01 AM

Precious metals stayed in a narrow holding pattern while Europe continues to work at untangling the mess in Greece. 

Gold was up $7.24 to $1,726.64 and silver was up $0.17 to $33.71 as the euro gained ground against the dollar. 

Europe keeps struggling to get their recovery off the ground as finance ministers struggle to close the deal on Greek sovereign debt.  What’s that?  You thought there was already a deal on the table to get Greece its bailout money?  Really, that was two whole days ago.  What happened in the meantime is the austerity measures knocked the props out of Greece’s GDP, which shrank another 6.8 percent in 2011.  That makes the budget cuts a moving target for finance ministers, who now say Greece has to come up with another 325 million-euros in reductions. 

It does point out that the time to cut government spending is not during a recession.  Ironically, the best time to cut government spending is when revenues are flush and the economy is booming, the time when there is the least compulsion by lawmakers to introduce austerity measures.  The situation in Greece is now being compared to Argentina and Latvia, two countries that defaulted on the debts and saw their GDP drop by 25 to 40 percent. 

The uncertainty of the situation in Europe is what is keeping gold trading in a narrow range.  Demand is staying high, as it typically does in times of uncertainty, but that demand is balanced out by growing optimism in the rest of the global economy, particularly the U.S.  Investors want to shift to risk on investments, but just can’t bring themselves to do it. 

For now, expect gold to trade in a narrow range between $1,710 and $1,730.  That will last until there’s some news to move prices one way or the other. 

Chris Poindexter, Senior Writer, National Gold Group, Inc