This week marks one of the biggest in recent memory for the entire euro-zone, as a number of key decisions and announcements will be made regarding the future of the indebted currency bloc. Last week saw ECB President Mario Draghi announce a major bond-buying program that lifted stocks around the world as it was a sign that the central bank will do everything in its power to ensure that no single country fails. One of the most active assets after the statement was gold, as people use this precious metal as both a speculative trading tool as well as a way to ride out current trends, both of which will make it a very active asset this week [for more gold news and analysis subscribe to our free newsletter].
First, “tommorow judges at Germany’s constitutional court will decide if a hotly contested permanent rescue fund can be set up to help bail out ailing eurozone countries. A No verdict or even restrictive conditions could cause chaos on the markets and signal the beginning of a possible demise of the euro” writes Tony Patterson. Any kind of negative news will send gold into the gutter, but then again, a positive ruling will lend a helping hand to the yellow metal, as it will likely surge higher. For the most part, analysts around the world are expecting a positive result, but that is never a guarantee.
Next will come the general elections in the Netherlands. If the results affords the victory to the Eurosceptic Labour party of Emile Roemer, many feel that the administration will undermine the strategy for saving indebted nations across the euro zone. These results will certainly take a back seat to the German ruling tomorrow, but it may still be big driver of gold. A major nation like the Netherlands throwing a wrench in the plans of the EU will take as a gloomy sign of things to come. As we have all seen before, any kind of negative news concerning Europe has the potential to propel gold, most often in a downward direction [see also Gold, Silver, Natural Gas Sitting in Deep Contango].
The next few days will also see a formal announcement of a plan for a banking union, a meeting to figure out a way forward with Spain and Italy, as well as a meeting between Greek Prime Minister Antonis Samaras and Mario Draghi to discuss a bailout extension for the Greeks. Calling this a make-or-brake week for the euro would be putting things lightly, but as volatile as the euro will be, gold will be there riding its coat tails. Each decision and result will push and pull at the precious metal, making funds likes GLD and IAU extremely enticing for short term plays. Predicting what will happen is more or less impossible as there are so many variables involved, just stick to the old adage ”the trend is your friend”.
Disclosure: No positions at time of writing.