This page has been archived and commenting is disabled.

Greece Debt Deal: "Kicking Giant Beer Keg Down Road Risks Destroying The Road"

Submitted by Tyler Durden on 02/21/2012 07:53 -0400

Greece Debt Deal: "Kicking Giant Beer Keg Down Road Risks Destroying The Road"

Gold’s London AM fix this morning was USD 1,737.00, EUR 1,313.12, and GBP 1,097.98 per ounce.

Yesterday's AM fix was USD 1,729.50, EUR 1,307.36, and GBP 1,090.82 per ounce.

Gold rose to its highest in a week today after euro zone policymakers sealed an agreement for a second debt deal with Greece. Gold remained flat at $1,736/oz in Asian trading after the deal was reached but then saw some buying which saw gold quickly rise to $1,740/oz and then creep up to over $1,743/oz.

Cross Currency Table – (Bloomberg)

U.S. gold rose 1% from Friday's close to $1,743.5 following the Greek bailout, catching up with gains in cash prices after the U.S. market was shut on Monday for a public holiday yesterday. Gold subsequently fell back to $1,737/oz in mid morning European trade.

Asian stocks were mixed and European indices are lower. This is either a case of ‘buy the rumour, sell the news’ or maybe market participants are beginning to get nervous regarding successive efforts at kicking the much abused can down the road and are nervous about other highly indebted industrial nations.

Gold has consolidated between $1,700 and $1,750 in the past two weeks as Greece has struggled to avoid default which could lead to contagion in the euro zone.

Euro zone finance ministers sealed a 130 billion euro ($172 billion) ‘bailout’ for Greece overnight to avert a chaotic default and likely contagion after persuading private bondholders to take greater losses and Athens to commit to brutal spending cuts.

The decision may help Athens resolve its immediate payment needs, but Greece still faces a very bleak financial and economic outlook in the coming years.

With elections tentatively scheduled in April, Greek politicians may become increasingly wary of standing behind the measures over popular outcry.

Those who have been correct about the crisis in recent years question whether a new Greek government will stick to the deeply unpopular program after elections due in April and believe Athens could again fall behind in implementation, prompting lenders to pull the plug once the eurozone has stronger financial firewalls in place.

The much used phrase "kicking the can down the road" underestimates the risks being created by European and international policy makers. Some have rightly warned that we will likely soon run out of road.

Rather than "kicking the can down the road" what politicians in Europe, in the U.S. and internationally are actually doing is "kicking a giant beer keg down the road".

The giant beer keg is the continual resort to cheap money in the form of ultra loose monetary policies, QE1, QE2, QE3 etc, money printing and electronic money creation on a scale never seen before in history.

The road is our modern international financial and monetary system.

The risk is that attempting to kick the giant beer keg down the road will lead to many broken feet and a destroyed road.

A European, US, Japanese and increasingly global debt crisis will not be solved by creating more debt and making taxpayers pay odious debts incurred through massively irresponsible lending practices of international banks.

The likelihood of continuing massive liquidity injections by the ECB next week and in the coming weeks will help keep the opportunity cost of holding bullion the lowest it has ever been and likely contribute to higher bullion prices especially in euro terms in the coming months.

XAU-EUR Exchange Rate 2 Days – (Bloomberg)

While the euro strengthened against the dollar, gold priced in euros fell initially but has edged marginally higher and gold is trading at €1,313/oz.

For breaking news and commentary on financial markets and gold, follow us on Twitter.

OTHER NEWS
(Bloomberg) -- Gold Trading Rose 1% in January as Silver Declined, LBMA Says
Gold trading increased 1 percent to an average of 22.2 million ounces a day in January compared with a month earlier, the London Bullion Market Association said today in an e-mailed report.

Silver trading fell 24 percent to a daily average of 149.2 million ounces, the lowest level since March, the LBMA said.

(Bloomberg) -- The J.P. Morgan View: The return of Asset Reflation
• Asset Allocation –– All assets are beating cash YTD, showing the power of asset reflation, which is being reinvigorated by massive liquidity injections from central banks across the world. We stay long the higher risk-beta asset classes, equities, gold and credit. • Economics –– World growth forecasts remain unchanged, but higher oil prices temper the upside risk bias from recent PMIs. • Fixed Income –– Government yields still out of kilter with improving activity data and the equity rally. • Equities –– Staying long and OW DAX and EM. • Credit –– We stay with overweights in EM $ sovereigns, US HG and US HY. • Foreign exchange –– Our main non-consensus calls for Q2 are a stronger euro and yen, at $1.34, and ¥73, versus the USD. • Commodities –– OPEC should be able to offset any lost Iranian exports but uncertainty around this is pushing oil prices higher. The rally in riskier assets reached a pause mode over the past week on higher oil prices.

(Bloomberg) -- Hedge Funds Boost Bullish Wagers to Five-Month High: Commodities
Hedge funds increased commodity bets to the highest in almost five months on signs that a rescue plan for Greece and faster U.S. growth will buoy demand as supplies shrink for everything from soybeans to copper.

Money managers boosted net-long position across 18 U.S. futures and options by 2.9 percent to 956,313 contracts in the week ended Feb. 14, the most since Sept. 20, government data show. Soybean wagers jumped 29 percent to a five-month high. Silver holdings rose for a seventh straight week, the longest advance in almost three years.

The Standard & Poor’s GSCI Spot Index of 24 commodities reached a six-month high on Feb. 17 as euro-area leaders expressed confidence that an agreement on a Greek bailout can be reached. Reports last week on U.S. housing and manufacturing beat analysts’ forecasts, and claims for jobless benefits dropped to a four-year low. Investments in raw-material futures have jumped 13 percent this year, exchange data show.

SILVER
Silver is trading at $33.71/oz, €25.47/oz and £21.33/oz.

PLATINUM GROUP METALS
Platinum is trading at $1,657.97/oz, palladium at $693.04/oz and rhodium at $1,500/

NEWS
(Reuters)
Gold hits 1-1/2-week high after Greece deal‎

(Bloomberg)
Europe Stocks Drop After Greek Bailout Deal

(MarketWatch)
Gold trades flat after Greek aid approved

(Reuters)
Brent hovers near $120, buyers take less Iran oil‎

(CBS News)
Colorado bill would legalize gold, silver currency

COMMENTARY
(MoneyWeek)
The Inconvenient Truth About Gold

(Precious Metals Research)
Do macroeconomic news releases affect gold and silver prices?

(Reuters)
Singapore the next gold hub?

(Mineweb)
AngloGold CEO says Warren Buffett just doesn't understand gold and gold investors

(GoldSeek)
The Cancer of Debt and Deficits

(FT)
The Drift Towards War With Iran

- advertisements -

Tue, 02/21/2012 - 07:58 | 2180292 The 100 Trillio...

Once Mario opened the taps with LTRO, no-one cares about anything other than Mario.

Tue, 02/21/2012 - 08:27 | 2180345 markmotive

I'm with Jim Rogers...we should have let them go bankrupt.

http://www.planbeconomics.com/2012/02/17/let-greece-go-bankrupt-jim-rogers/

Tue, 02/21/2012 - 08:00 | 2180294 pepperspray

Coming to a gas station pump near you

Tue, 02/21/2012 - 08:01 | 2180296 trampstamp

kickit!

Tue, 02/21/2012 - 08:26 | 2180344 bernorange

Gets harder when "down the road" is up hill.

www.pmbug.com

Tue, 02/21/2012 - 08:08 | 2180301 spjk2k

the world is in a stalemate with reality.

Tue, 02/21/2012 - 08:20 | 2180326 HD

I like that. If you came up with that, I tip my hat to you sir.

Tue, 02/21/2012 - 08:10 | 2180302 Zola

Tyler has there been any development on the 6trillion USD bonds seized ? What about rumors linking it to the dragon family and China Gold ? Is this thing a total hoax ?

Tue, 02/21/2012 - 08:28 | 2180352 Poor Grogman

Sorry to jump in but had to comment.
I call b/s because of the amount involved. Simple maths , compare it to something like all the gold ever mined, then decide.

Tue, 02/21/2012 - 10:46 | 2180738 BigJim

Yes... and no. Comparing it to 'all the gold ever mined' means examining how the figure for 'all the gold ever mined' was arrived at....

http://www.goldstandardinstitute.net/2011/10/how-much-gold-stock-is-ther...

Tue, 02/21/2012 - 17:19 | 2182283 Poor Grogman

Thanks for the link good article, FYI I was using the "well known estimates".
however as the article correctly states these estimates could be way out.

The case of the Bond fraud Is a curious one and I also would love some more info on the find.
Cheers .

Tue, 02/21/2012 - 08:13 | 2180309 eddiebe

So does that mean that if there is a greek bail-out people will eat more soy beans?

Tue, 02/21/2012 - 08:15 | 2180317 PORTA PORTA

Find below the official :

Eurogroup Statement
http://www.scribd.com/doc/82276068/Eurogroup-Statement-February-21-2012-PP

and…. o my GOD.. they hahaha managed to start regulation on naked CDS’s… on sovereign debt…. Hell Awaits

http://www.scribd.com/doc/82276474/Regulation-Adopted-on-Short-Selling-and-Credit-Default-Swaps-6625-12-February-21-2012-PP
and
http://www.scribd.com/doc/82276715/Legislative-Acts-regulation-of-the-European-Parliament-and-of-the-Council-on-Short-Selling-Aspects-of-CDS-pe-cons-68-11-february-10-2012-pp

ENJOY.. the absence of common sense. They are extremely dangerous – this make sense since they are politicians to be re-elected !

By the way i place a bet .. the EFSF does not have the Funds !! maybr June/July

Tue, 02/21/2012 - 08:28 | 2180348 kralizec

...on the road to hell...

Tue, 02/21/2012 - 08:28 | 2180350 HD

So the Fed prints. the ECB prints. Japan prints and everyone else eases in one form or another... The wave of inflation coming is going to be massive - all so the banks don't have to take responsibility for anything.

I think after four years the wheels are finally coming off the bus...

Tue, 02/21/2012 - 09:14 | 2180440 Sandmann