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20 May 2011

Don't Expect Greek Debt to Ignite Gold and Silver by Itself

Gold Strengthens on Fears ECB Lending may be Withdrawn, But Market has not yet Priced in full Domino Effect

Yet more fears of a Greek debt default percolated to the front of investors minds on Friday, boosting Gold even in the face of dollar strength against the Euro currency.

Comments from an ECB member calling into doubt lending facilities to Greece if it went ahead with debt restructuring, i.e. extending the term on its bonds, caused global markets to fall and Gold to strengthen above $1,500.00

Most observers regard ECB withdrawal of lending as a nuclear option, as it would almost certainly cause the Greek Banking system to fail. This would directly go against the ECB mandate to foster financial stability.

For this reason, moves in Fridays markets were relatively subdued.

However while there still appears scant hope of a long term fix for Greeces woes, the chance of contagion across Europe persists.

Were this situation to come to a head either in the form of some kind of default, (and further knock-on effects within the European banking system), or through further massive money printing exercise to prevent a default, we would expect to see a return to form for Gold and Silver.

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