The demand for gold as a safe haven asset has fallen, thanks to the market’s reaction to the Greek elections. The anti-austerity political party in Greece won, and the market interprets this as leading to Greece staying in the Eurozone. The prime minister-elect of Greece has pledged that Greece won’t leave the single currency union; instead, the incoming new government just wants to relax the austerity measures imposed on Greece by Eurozone countries in exchange for continued assistance.
These assurances have had a positive effect on the value of Euro. Previously when the news broke that the anti-austerity Syriza party won in Greece, the Euro crashed against the dollar. At one point, the Euro reached an eleven-year low against the green bag. After processing the Syriza chief’s pronouncements regarding the Euro, the market demand for the Euro has rebounded and this has put downward pressure on gold. Usually, during times of economic uncertainty, gold spikes up. Global investors use gold as a store of value during uncertain times.
The 800-pound gorilla that many market participants seem to be ignoring is the reality that the Eurozone might be unworkable. Keep this in mind while gold is still down. The reality is that nineteen nations can’t run on a single currency when they have different economic policies. This is of course tied to their need to retain political sovereignty. You can’t have it both ways. As the old saying goes, you can’t have your cake and eat it too. It’s just a matter of time until this issue is resolved one way or the other. Regardless, keep your eyes focused on gold since it will definitely get a lot of action once the resolution to the Eurozone’s underlying economic versus political sovereignty issue is resolved.
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