Gold prices have staged a turnaround this week amid fresh weakness in the dollar and burgeoning demand from Asia.
In Europe, the euro rose against the dollar, reflecting general optimism about steps taken by euro-zone officials to contain the continent's sovereign debt woes. There has also been serious discussion about expanding the bailout fund to make more resources available to ailing euro-zone economies.
The latest indicator for possible further advancement in the euro came from Greece, which surprised some onlookers today by pulling off a large $865 million auction of treasury bills in an offering that was oversubscribed by nearly five times. The rate offered on the securities was the same as the last auction for a similar issue in November 2010.
There is continued strength in the euro, said Adam Klopfenstein, a senior market strategist with Lind-Waldock. I think that bodes well [for gold] on a currency basis without any real headline-grabbing news.
Greece's Socialist government has undertaken a painful program of politically difficult austerity measures, including cutting pensions and salaries while raising taxes and the retirement age. This all comes amid a sharp recession and growing unemployment. However, these measures are necessary to secure the international community's support for giving rescue loans to Greece so it can avoid bankruptcy.
Greece said it expects to be allowed to delay repayment of these loans, thus avoiding a steep accumulation of maturing debt as it struggles to rein in a runaway deficit. It faces the daunting task of reducing a debt expected to exceed 150 percent of gross domestic product while reviving its shrinking economy.
Gold's weakness in 2011 has provided a buying opportunity, analysts said, particularly as Asian buyers look to take advantage of the lowest prices since late-November to increase their holdings. With prices near record highs during much of late-2010, physical buyers have been keen to take advantage of pullbacks.
Prices are starting to look attractive to Asian buyers, Andrey Kryuchenkov, an analyst at VTB Capital in London.
Big price dips have often triggered physical buying from more price sensitive markets like China and India. China begins its New Year festivities on February 3 when the Year of the Rabbit kicks off and consumers are buying gold ahead the celebration.
Scott Carter is Chief Executive Officer of Goldline International, Inc. and host of The American Advisor talk radio show.
(Sources: Greece raises $865 million in debt sale, Associated Press, January 18, 2011; Gold Prices Jump as Inflation Rises, TheStreet.com, January 18, 2011; Gold Prices Push Higher, Wall Street Journal, January 18, 2011; Gold Advances as Europe Debt Concern, Price Decline Spur Investor Demand, Bloomberg, January 18, 2011)