Gold prices are up today after the second Greek bailout was agreed upon late last night by member of the Euro zone. Gold was up close to $30 to $1,756.10 this morning.
Now that the Greek bailout has been signed investors can move on the next worry that is, yet again, Greece. The new problem is that even though Greece got $130 billion euro package the country is still at risk for default and the projected debt reduction by2020 is at 120% of GDP. Quite frankly, they will be lucky if it’s at 129% of GDP by 2020.
Gold was also rising after the Chinese government lowered its reserve requirements for banks. The People’s Bank of China said that it will lower the reserve requirements by 0.5% to help promote an increase in lending. Some analysts are suggesting that this is a sign that China’s economy is slowing.
Gold continues to move higher, its highest level since December because there is still a lot of risk in the market place. Uncertainties like Greece, other Euro zone nations, China’s possible slowdown, etc. Greece is not in the safe zone yet, far from it. The country needs to take its budget cuts seriously and use the bailout money very wisely.
Greece may be in the spotlight now but what about the other ailing European countries such as Italy, Spain and Portugal? Did they fix their debt situation? Most likely not but the Greek situation is much worse, taking up all the media and time for EU talks. It will be interesting to see if these countries emerge back in the news after Greece’s situation has died down a little. Bottom line, Europe is not out of the woods, not even close.
China is not very transparent when it comes to its economy so it can be a little hard to tell where things could be going. However, if you look at the reserve requirement easing and Chinese companies moving operations to the US, they could point to signs that their economy could be slowing a bit. The Chinese Yuan is undoubtedly hurting Chinese companies, that is why they are moving to the US. A higher currency hurts exports because countries are not going to be as willing to buy the same product at a higher price.
The global economy is at a crossroads right now. A lot of unanswered questions still linger in the marketplace. Investors are turning to gold for some safety during uncertain times. Look for the gold rush to continue until we get a clearer picture from China and Europe continues to clean up its act.