EU Bailout of Greek Debt Crisis Could Pressure Euro, Benefit Gold

NEW YORK, May 3 /PRNewswire/ -- Jeffrey Nichols, Senior Economic Advisor to Rosland Capital (www.roslandcapital.com), had the following commentary based on recent market activity and the week ahead:

The gold market is already telling us that the global sovereign debt crisis will likely get worse, despite this weekend's bailout of Greece by the European Union.  

The U.S. dollar price of gold – having risen 6% in April – began this week and the new month on a strong note, moving higher today.  The yellow metal is now trading at the highest prices seen this year and is closing in on its all-time high of $1227.50 reached early last December.  We feel increasingly confident with our long-standing forecast that gold will breach this level by midyear and hit $1500 an ounce by yearend.

Increasingly, investors around the world are taking note of gold's safe-haven status in a financially unsafe world.  While the U.S. dollar-denominated gold price has not yet regained its all-time high, the gold prices denominated in euro, British pounds, Swiss francs and many other currencies are achieving new record highs.  Historically, gold-price strength across many currencies is a bullish indicator of solid worldwide investment demand.  

Earlier this year, news of a massive European loan package for Greece might have sent the euro higher and cut safe-haven demand for gold.  But now, a growing chorus of traders and investors see the bailout, at best, as a temporary band-aid for Europe's sovereign debt crisis.  Many expect market attention to shift to one or another of the over-indebted European economies.

Last week, rating agencies had already downgraded Greek debt to junk status and cut ratings on both Spanish and Portuguese debt.  We think it is only a matter of time before the "bond market vigilantes" take aim at these economies – selling Spanish and Portuguese debt, as they did earlier with Greek debt, thereby bringing about the declining bond prices and rising interest rate yields on these other overly indebted nations that make it difficult if not impossible to roll over existing debt necessary to prevent sovereign default.  

At the same time, we wonder if the Greek tragedy is really ending.  After all, Germany's parliament must still approve participation in the loan package – but a majority of German voters do not want to bear the expense of aiding their southern neighbors.  And, longer term, it remains to be seen if Greek voters will accept the harsh medicine required by their fellow Europeans... and, if they do, whether the country can crawl out of its debt hole with the economy stuck in a worsening policy-induced recession.  

It seems likely that Europe's widening debt problems will force many countries to adopt austere fiscal policies – policies that promise years of slower growth, if not outright recession, and continued high or rising unemployment.  As a result, the European Central Bank will be forced to counter deflationary fiscal policies with reflationary monetary policies including low interest rates for longer than might otherwise be appropriate.  This is a policy mix that suggests continuing pressure on the euro, Europe's common currency, with gold being the ultimate beneficiary.

To arrange an interview with Jeffrey Nichols, please contact Liz Cheek of Hill & Knowlton at (212) 885-0682 or [email protected]

About Rosland Capital

Rosland Capital LLC is a leading precious metal asset firm based in Santa Monica, California and buys, sells, and trades all the popular forms of gold, silver, platinum, palladium and other precious metals. Founded in 2008, Rosland Capital strives to educate the public on the benefits of investing in gold bullion, numismatic gold coins, silver, platinum, palladium, and other precious metals. For more information please visit www.roslandcapital.com.

About Jeffrey Nichols

Jeffrey Nichols, Managing Director of American Precious Metals Advisors and Senior Economic Advisor to Rosland Capital, has been a leading precious metals economist for over 25 years. His clients have included central banks, mining companies, national mints, investment funds, trading firms, jewelry manufacturers and others with an interest in precious metals markets.

SOURCE Rosland Capital