LONDON (Commodity Online): Once again Europe has come to the rescue of gold, which has been witnessing a steady slide during the past few weeks. With Italy and Greece plunging into crisis again, the uncertainty looming over Europe has added to the fear among investors and gold prices are set to cash in on this panic with more demand from safe haven buying.
Gold for December delivery was down 2.1 per cent this week at $1,166.60 an ounce on the Comex in New York. The metal has dropped 7.9 per cent since climbing to a record $1,266.50 on June 21. Prices on July 28 slipped to a 12- week low of $1,159.30 as holdings in the SPDR Gold Trust, the biggest gold-backed exchange-traded fund, dropped the most in more than two years. Physical demand for gold from India, China and the wider Asian region was very visible as prices declined this week.
Spot gold added as much as $5.85, or 0.5%, to $1,169.45 an ounce in London and was at $1,167.15 on Friday.
Two major developments in Italy and Greece will definitely help gold in the coming days. On Friday, Italian parliament approved an austerity package worth more than $32bn, aimed at cutting the country's budget deficit and reassuring financial markets.
Sponsored by the government of Silvio Berlusconi, the prime minister, the package passed by a vote 321 to 270 votes, with four abstentions. The cuts aim to bring Italy's budget deficit under three per cent by 2010 from 5.3 per cent in 2009.
Italy's largest union staged strikes over the measures, as did magistrates, doctors and diplomats. The austerity package has won praise from European Union officials and the International Monetary Fund (IMF). Following this, there have been crisis talks in Italy as Silvio Berlusconi split from his once most powerful ally, prompting speculation the government could fall.
Senior colleagues gathered to discuss the consequences of the final showdown between the premier and Gianfranco Fini after months of conflict. The pair co-founded the ruling People of Freedom party. But now it has issued a document, censuring Fini for open dissent.
Berlusconi's government was in danger of collapse after open warfare broke out between the Italian prime minister and his most senior party colleague. The dispute with Gianfranco Fini, the co-founder of the governing People of Freedom party, follows a string of corruption and sex scandals.
To add to this European fire, more fuel was added from Greece also. In Greece, truck drivers defied an emergency government order Thursday to end their strike and return to work.
The country's 33,000 licensed truck drivers walked out on Monday in protest over the government's plans to slash the price of new trucking licenses, a key provision in a multibillion-dollar plan worked out with the European Union and the International Monetary Fund to help Greece avoid defaulting on its debt.
Greece had also the closure of almost a dozen consulates in Europe and South Africa due to the economic crisis that has hit the country hard this year. The decision was taken as part of government efforts to slash the state budget deficit, currently reaching 13.6 percent of the GDP, to less than three percent by 2014 and restore the national economy.
The financial rescue package, which was agreed to in early May, will require years of painful belt-tightening in Greece. In return, the nation's European partners and the IMF agreed to provide $146 billion in loans over the next three years, intended to help Greece avoid a default.
The situation is spreading panic in Europe once again and global gold market is upbeat over increased demand from safe haven buying.