EURO TROUBLES MEAN THE US COULD OFFER A SAFER HAVEN
INSIGHT IG MARKETS
ELECTIONS in the Eurozone sparked a bout of severe risk aversion last week, as the possibility of a Greek exit from the single currency suddenly looked more likely than it has for some time. As had been expected, no party won an overall majority in Greece, and there were heavy losses for the two major parties that had dominated Greek politics for the past forty years. Over the week, there were three attempts by various politicians to actually form a government, with each giving up in short order, raising the prospect of new elections in June. The particularly worrying element in the elections was the big increase in support for anti-bailout parties, suggesting that a second round of elections could see an anti-bailout party actually win a majority. Such a possibility might actually result in a Greek departure from the Eurozone, a prospect that was being actively discussed in Europe over the weekend.
One of the big features of 2012 so far has been the strength of US markets, especially when compared with their counterparts in Europe. While the FTSE has given up its gains for the year, the Dow remains in positive territory, and this has been reflected in clients trimming their short positions on the leading US index to 54 per cent short. Continuing problems in the Eurozone, where Spain and Italy remain problematic and Greece looks to be hurtling towards the exit, mean that the US markets could offer a degree of safety from the current market turmoil.
In times of volatility, gold often provides a refuge. The relentless rise of the yellow metal was one of the great news stories of 2010 and 2011, but 2012 has been much less favourable. The price has dropped below $1,600 per ounce and is now pushing lower. However, there still appears to be appetite for gold among IG’s clients, with sentiment remaining resolutely bullish.