Gold Rate Climbs on Greek Bailout

The recent bailout on Tuesday, another in a long series of cash infusions by the European powers into the sinking ship that is Greek public debt, had a curious and different effect on the markets than similar bailouts have in the past. Rather than causing euro currency markets to go up and stocks to rise, it didn’t seem to have much of a measurable effect on either. While the Dow breached 13000, it did so half-heartedly and is now on a definite downward trajectory just two days later. The euro’s value has remained flat.

Instead, the market traded excited sentiments about the potential disappearance of the European crisis for hard-headed ideology about currency debasement. It seems that the market’s response to the bailout was to go all into precious metals such as gold, silver and platinum. In particular, the gold rate jumped near to November highs, and there are no market indicators to curb its rise.

The Greek bailout was structured such that Germany and the European Union conjured a lot of money out of thin air to reduce the debts held by Greece. It didn’t even try to solve any greater social problems that led to the creation of that debt in the first place such as poor economic conditions or widespread joblessness leading to plummeting government revenues.

Traders are beginning to understand that just because the European leaders say something is so, doesn’t mean that it actually is so. The constant looming threats of Greek default have led to quick fixes by Europe’s leadership for the past year now, yet the threats are still there, and the broken system is only, if anything, developing more cracks in the hull. This leads to uncertainty about the future with a currency that feels more like a printing press than an exchange medium, which in turn leads to the flight to gold and the rising gold rate.

While most traders don’t remember the days of the Weimar Republic’s hyperinflation, they know that it is a scary story and they want no part in it. The Greek bailout is reminiscent of many tactics used by the powers that be at that time to attempt to keep Germany’s nascent post-WWI economy from collapsing. Just throw money at it and cross your fingers. Greece has been bailed out many times over the past year, and each time the global economy remains shaky. It only makes sense that jittery investors, afraid of currency debasement and economic uncertainty, push up demand for gold.

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