IMF bailout for Greece to rein in gold

LONDON (Commodity Online): Bullion and precious metal investors heaved a sigh of relief this week, following the decision of EU and IMF to bail out debt-ridden Greece.

In fact, the Greek tragedy and the cascading impact on other European nations had hit the bullion market and palladium and platinum prices.

With the Greek tragedy threatening to spread to other nations like Spain and Portugal, gold prices became unpredictable for investors and even the demand for platinum group metals (PGMs) showed a decline fearing that the economic slowdown may hit the auto market.

Platinum and palladium have been rising steadily in the recent past but the European problems impacted the easy ride of the metals.

European governments endorsed on Sunday an unprecedented 110-billion-euro (160-billion-dollar) bailout to save Greece from bankruptcy and shore up the single currency after Athens agreed to draconian spending cuts.

The Standard & Poor's credit rating agency had slapped Spain with a credit downgrade amid fears its recession could further weaken its public finances.

The Spanish economy, Europe's fifth largest, contracted 0.1 per cent in the fourth quarter from the previous three months, even as the entire eurozone, the United States and Japan emerged from recession.

The economy of Greece is the twenty-seventh largest economy in the world by nominal gross domestic product (GDP) and the thirty-third largest by purchasing power parity. In the first weeks of 2010, there was renewed anxiety about excessive national debt.

The direct impact of those market developments is on investors who already hold Greek government debt, or bonds. The price of the bond falls, so they make a loss. It is, in effect, old debt with fixed payments that don't change, so there is no direct loss for the Greek Treasury.

And, after watching the Greece crisis unfold, worried investors rushed to gold. And, traders are using gold as a hedge against the euro, which is wobbling on Greece's latest debt worries. As a result, gold and silver prices climbed up this week in the London market.