Euro Zone Debt Crisis Far From Over

Greece has slipped out of the news following the debt restructuring earlier this month, but The Wall Street Journal provides an update on the sorry state of the country. Despite losing more than €105 billion off its bond debt in the restructuring, Greece's total public debt is still around €330 billion, or more than 160% of GDP, a level most economists say it can't repay. And owing to the still shrinking economy, the country’s budget deficit stands at around 10% of GDP. Little wonder then, that “half the electorate plans to vote for radical opposition groups” in an election that is expected to take place in April or May.

At the other end of the Mediterranean, disappointing Spanish government bond sales on Monday are also raising serious fiscal and political questions. Spain had agreed with the EU to austerity measures designed to limit the country’s budget deficit to 4.4% of GDP, though this figure is now expected to hit 5.3%. Elections in Andalusia at the weekend will test the popularity of Prime Minister Mariano Rajoy, with The Big Picture’s Kiron Sarkar commenting: “Spain will continue to pose a serious threat to the EZ. Mr. Rajoy has inherited an unenviable task from, in my humble opinion, the grossly irresponsible former regime and I, for one, feel sorry for him – it looks like he’s taken on an impossible task.”

Deleveraging isn’t pretty. But as PIMCO’s Bill Gross notes in a new article at ZeroHedge, periods of austerity necessarily follow periods of excess as far as credit/debt expansion is concerned; as far as recent history in the developed world is concerned, “the trend towards financial leverage has been ever upward.” A key take-away from this? “Commodities and real assets become ascendant, certainly in relative terms, as we by necessity delever or lever less.”

Gold price action yesterday morning GMT was encouraging, with the bulls managing to push the price up to selling resistance at around $1,695 on the back of Ben Bernanke’s dovish remarks on Monday. However, the price slipped back during Comex trading hours. Gold has buying support at $1,650 in the event of further falls. Silver price action is still indecisive, with the metal yet to re-establish itself back above resistance at $32.50. Strong support will be found though on any dips towards the 100-week moving average at just above $30.