Greek Deal Boosts Stocks and Commodities

Stock markets and commodities have risen this morning following the Greek parliament’s approval of a new austerity package, which paves the way for a new €130 billion loan from the European Union and International Monetary Fund. Though the austerity measures are deeply unpopular in Greece – with rioting now occurring across the country – this package will mean the country can avoid a so-called “disorderly” default on March 20, when a €14.5bn bond comes due.

Combined with the European Central Bank’s second package of loans to struggling eurozone banks (the “long-term refinancing operation) scheduled for later this month, and it looks like the eurozone will continue to muddle through in the short-term. Certainly the action in the currency markets would seem to indicate this growing confidence, with the euro rising above $1.325 against the US dollar.

Though it’s getting increasingly boring talking about Greece, given the violence on the streets there over the weekend politics there may start to get interesting – and not in a good way. As the Telegraph’s Ambrose Evans-Pritchard reports from Athens, support for the far Left and far Right is growing, with the once-dominant Pasok party now at just 8% in the polls. The open question remains whether or not the Greek people will be willing to accept EU bureaucrats’ oversight of Athens’ budget. Populist anger in Greece is growing against all things German – with Angela Merkel frequently depicted on the front of tabloid newspapers wearing a swastika on her arm, complete with talk of a “German gauleiter” being appointed by Berlin/Brussels to oversee the Greek government’s spending decisions. Though the country’s political and business elite remains committed to membership of the euro, they risk being swept away in a tidal wave of unrest and violence unless economic conditions in the country start to improve.

What does all this mean for gold? Famed gold-hand Jim Sinclair thinks that this is all a prelude to the metal being reconnected to the world’s monetary system. As part of an interesting post at his blog JSMineSet.com, he writes:

“What will have to be rescued is the banking a system of Euroland and elsewhere holding the debt of Greece. However, what makes you think that other European nations will not demand some degree of equal treatment as the US credit rating agencies continue to downgrade European sovereign debt and the debt of their banking system.

“Clearly the International Swaps and Derivatives association will see no default in the Greek credit event because it is voluntary. To declare this as such is the final can kick because it will be met by a demand for equal treatment and that will require infinite QE to hold up the world banking system. This begins a march towards 2015 when gold has a cyclical chance of being full-valued for the time being. A march has begun towards the virtual reserve currency that will have a connection to gold. This march will be toward an equilibrium price of gold and will not repeat the 1980 fall in price.”