Gold is likely to test 1,200$/oz mark

The Greek government has reached an agreement with the EU and the IMF on an additional savings program. This should stop the decline of the euro and could lead to a recovery against the US dollar. Gold should benefit from this development. The large speculators should increase their net long positions further, as it was the case in the previous week. Therefore, gold could test the psychological resistance mark of 1,200$/oz. Indeed, even an increase to a new all time high is not excluded.

Early on Sunday morning, the Greek government has agreed in the negotiations with the IMF and the EU on an austerity program that contains further cuts in civil servants salaries and pensions. Also another increase in the VAT rate is on the program. The decision by EU finance ministers still pending at the time this blog post was written. But it should be positive for Greece. In Germany, the federal government will on Monday decide on the bill and the legislative process is scheduled to be completed by Friday of this new week. Greece could obtain the funds timely before the maturity date of 8.5 billion euro for mid-month and thus, can redeem the bonds. Overall, Greece will receive 45 billion euro of credit by EU and IMF this year. So far it has been assumed that this is sufficient to avoid bankruptcy in Greece. However, the Greek Prime Minister Papandreou said today that his country would need 60 billion euro in order to avoid state bankruptcy.

In the financial markets, some recovery should therefore occur, although, it might be only a modest one, given any remaining doubts about the solvency of Greece. The euro is likely to stabilize and recover slightly against the US dollar. Thus, any effect on the gold price is positive. Those investors who bought gold as insurance against bankruptcy of Greece are expected to keep their positions. And investors buying gold as a hedge against a weaker dollar should return as the buyer to the gold market.

According to the latest report from the CFTC on the "commitment of traders", large speculative addresses such as hedge funds have increased their net long position in the week ending 27 April again. Now it stands at its highest level since mid-January. In the chart, the gold price is shown as of the reporting deadlines for the net long position of the large speculators. As the price of gold after 27 April has risen further, large specs should not have reduced their positions. With rising gold price, net long positions could increase and thus support the rally in gold. Gold is expected to test at least the psychological resistance mark at 1,200$/oz. In the case of a breakthrough, even a new historic high could be reached.