All-Time High in Gold Signals Persistent Risk Aversion


"Gold surged to a new record-high. . .amid lingering woes over Greek sovereign crisis"

Gold surged to a new record-high in NY session Tuesday amid lingering woes over Greek sovereign crisis. The benchmark contract for the yellow metal rallied to as high as $1,235.2 before settling at $1,220.3, up +1.62%. Silver jumped +4% to $19.294. PGMs also rose but the gains were modest with platinum and palladium adding +0.43% and 1.47% respectively. Commodities that have more direction link with economic cycles got hammered with WTI crude sliding -0.56% to 76.37. Brent crude, however, climbed +0.5% higher to 80.49. Base metals also got hit with losses ranged from 1%3%.

Despite positive market reactions after EU and IMF announced the 750B euro stability package, rallies in risky assets lost steam quickly. It indicates that investors are skeptical about the effectiveness of the plan in containing the crisis. Economists in the street comment that the main problem in Europe is 'solvency' rather than 'liquidity.' Therefore, the government should find ways to reduce deficits and the package does not really address the real problem.

In the medium- to long-term, economic recovery in the Eurozone remains fragile. In IMF's report released earlier this week, 'aiming to stabilize public debt in the short run is neither feasible nor desirable, given the risk of a relapse into recession and the magnitude of the required fiscal retrenchment. . .however, sustainability indicators are flashing warning signs about the public debt in most countries, and sizable consolidation efforts are needed in the medium term.' The world lender said Europe's performance remains 'weak compared with the recoveries under way in other parts of the world.'

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