The following is an excerpt from Ben Traynor | October 27, 2011 | resourceinvestor.com
The gold price rose to $1,725 per ounce Thursday lunchtime in London – 5.1% above where it started the week – following a mid-morning dip.
Silver prices continued to see-saw around $33.50 per ounce – 6.7% up for the week so far.
Stock markets meantime surged throughout the morning following news of an agreement between euro-zone leaders at yesterday’s crisis summit.
Commodity prices also rallied strongly, while government bonds sold off.
“The optimism could soon fade, which could see participants once again adopt a risk-off stance,” warns Marc Ground, commodities strategist at Standard Bank.
“However, given gold’s close co-movement with equities recently (the last few days excluded), it is uncertain whether the metal will benefit from a market returning to risk aversion.”
The gold price “has come under some pressure,” adds Nikos Kavalis, commodities strategist at Royal Bank of Scotland.
“But [it] has been supported by good buying from private banks.”
Private sector creditors will take a nominal loss of 50% on their Greek bond holdings, euro-zone leaders agreed early on Thursday morning, following eight hours of negotiations.
“Together with an ambitious reform program for the Greek economy, the [50% haircut] should secure the decline of the Greek debt to GDP ratio with an objective of reaching 120% by 2020,” said the official euro summit statement.
Banking sector representatives had previously offered to accept a haircut of 40%.
Euro-zone leaders, however, invited the banks’ representatives to yesterday’s summit “not to negotiate, but to inform them on decisions taken by the 17 [euro-zone member countries],” French president Nicolas Sarkozy said.
Politicians threatened “to move toward a scenario of total insolvency of Greece, which would have cost states a lot of money and which would have ruined the banks,” according to Luxembourg’s prime minister Jean-Claude Juncker – who chairs the euro group of single currency finance ministers.
The European Central Bank has repeatedly said any losses should be voluntary in order to avoid a credit event – which could trigger payments on credit default swaps, derivative contracts that act as a form of bond insurance.
However, “as far as the analysis for CDS purposes goes [this agreement] doesn’t change things,” reckons David Geen, general counsel trade body the International Swaps and Derivatives Association.
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