Posted on February 18, 2015
Gold prices were higher today as U.S. markets were closed for the President’s Day Holiday. The price of gold moved up by nearly $5.00 per ounce as global markets pay close attention to developments surrounding Greece and the EU.
Stock futures moved decidedly lower today in thin trade as the talks between Greece and the EU did not appear to go well. The lack of progress today could potentially push Greece one step closer to an EU exit, although hope remains that some type of deal can be hammered out. EU officials could potentially acknowledge the fact that Greece is willing to accept some reforms, and therefore there does exist the possibility that Greek banks could potentially access the ECB’s emergency liquidity assistance program. That being said, even if Greece is allowed to access this source of funding, it does not provide a long-term solution to the problem and may in effect just be kicking the can down the road. Without this assistance or some type of last minute bridge loan, Greece is in serious jeopardy of a default and an exit from the EU.
Given the complexity of the situation and the short timeline, a default is looking more and more possible. It remains unclear how a default would affect global financial markets, however, the possibility of runs on Greek banks along with investor panic could be seen. The question then becomes whether or not the situation can be contained, and if a Greek exit will set a precedent for other EU members that are struggling with sovereign debt issues.
This week will be key for stocks as the markets will either attempt another move higher into all time high territory or will pullback again. The outcome with Greece and the EU could very well be the cause of a stock market rally or a stock market collapse.
Gold will likely remain supported as the situation is ongoing. Should stocks begin to show signs of faltering, buying in gold and other perceived safe haven assets could potentially accelerate quickly. Gold has bounced off support in the $1220 area in recent sessions, and could make a rapid move back to recent highs if risk appetite declines significantly.
This holiday shortened trading week is relatively light data-wise. The highlight of the week will be the release of the FOMC minutes on Wednesday afternoon. Investors will be looking for clues as to the central bank’s plans regarding interest rates as well as the Fed’s assessment on economic conditions.