The recent agreement regarding Greece’s debt by the International Swaps and Derivatives Association (ISDA) has sparked a significant upsurge in the gold market. Greece, widely known as the most widely publicized country with sovereign debt issues, received a bailout from Germany, yet this intervention was met with domestic opposition and has been accompanied by stringent austerity measures.
The recent deal on the application of Collective Action Clauses (CAC) to Greek debt by the ISDA was the final trigger that the banking committee had been awaiting, resulting in an immediate increase in the spot price of gold by $40 per ounce. The gold market had been gradually regaining ground, climbing above $1,700 per ounce, following a temporary dip caused by a tentative announcement of a third round of Quantitative Easing.
While the Western financial markets are still anticipating a delayed Quantitative Easing program, the demand for gold in the East has remained at an all-time high. The two largest gold markets in the world, India and China, have continued to acquire gold at an increased rate during the dip.
The fundamentals of the gold market are solidifying, with the spot price of gold once again exceeding $1,700 per ounce. Although further price drops cannot be ruled out, the market fundamentals remain intact for higher prices, absent any external pressures. This week, Citigroup released a report, increasing and prolonging its projection for the price of gold to reach $2,400 per ounce within the year. Persistent low-interest rates and continued inflationary policies by the Federal Reserve provide the best fundamental support for gold to surpass its all-time nominal high of $1,922 per ounce achieved on September 6, 2011.
The debt deal in Greece represents a step forward for the country, but it also signifies the re-emergence of the gold market. The recent increase is just the beginning, with much room for growth in the future.
Recommended for you: Gold IRA Rollover Guide and Silver Investments.
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