Investors "Buy Gold on Euro Crisis", Greek PM "Won't Last til Tonight", "No Greek Loan til Referendum" but "Referendum is Dead"

Dollar prices to Buy Gold rose sharply to a six-week high of $1757 per ounce late on Thursday morning – though only 0.7% above last week's close – following reports that Greek prime minister George Papandreou was on the verge of offering his resignation.

Stocks and commodities gained, while the Euro dropped sharply following the European Central Bank's decision to cut interest rates.

Prices to Buy Silver also rose, hitting $34.73 per ounce – though still 1.7% down for the week so far.

"Silver is going neither here nor there," one Shanghai-based trader tells news agency Reuters, citing a "lack of physical demand from industrial users".

Eurozone leaders were openly discussing a Greek exit from the Euro last night, while the Greek government was reportedly close to collapse, after another member of prime minister Papandreou's party indicated they will not support the government in a confidence vote scheduled for tomorrow – taking Papandreou's majority down to one.

"It seems that people prefer to Buy Gold [with Euros] which makes sense because of all the problems there," says Walter de Wet, commodities strategist at Standard Bank.

Greek finance minister Evangelos Venizelos meantime caused a split in the cabinet when he indicated he is not in favor of holding a referendum on last week's Euro Summit deal, which Papandreou says he hopes to hold on December 4.

"The referendum is dead," reckons Nikos Salayannis, another member of Papandreou's ruling Pasok party.

"I don't think the government will last until tonight," added Costas Panagopoulos, managing director of polling company ALCO, early on Thursday.

An ALCO poll conducted in May 2010, shortly after the first Greek bailout deal was agreed, found that at that time 51.4% of Greeks were in favor of austerity measures in return for international aid. Strikes and protests were favored by 28%.

Eurozone leaders and the International Monetary Fund have said they will not release the €8 billion bailout payment due for this month until the referendum is held.

"As soon as the referendum is completed, and all uncertainty removed, I will make a recommendation to the IMF Executive Board regarding the sixth tranche of our loan to support Greece's economic program," said IMF managing director Christine Lagarde on Wednesday.

The tranche cannot be released "until Greece endorses the package of October 27," added French president Nicolas Sarkozy, saying that Greece would not receive "one more cent" if the Greek people were to reject the deal.

"The referendum will revolve around nothing less than the question: does Greece want to stay in the Euro, yes or no?" said German chancellor Angela Merkel, echoing words used by Papandreou earlier this week.

"We would rather achieve a stabilization of the Euro with Greece than without Greece, but this goal of stabilizing the Euro is more important."

In September, Merkel said leaders' "top priority" at the time was "to avoid an uncontrolled [Greek] default".

The ECB meantime cut its key interest rate Thursday by a quarter-point to 1.25%, following its first monetary policy meeting since Mario Draghi took over as president.

Italian 10-Year bond yields hit another Euro era high Thursday morning, spiking to 6.4%. The ECB began buying Italian bonds in early August when yields hit 6.3%.

"Don't expect the ECB to bail everyone out," warns Marco Annunziata, former IMF official and now chief economist at GE Capital. 

"It should not and it will not, unless it becomes a matter of life and death for the Eurozone."

Over in the US meantime, the Federal Reserve is "ready if necessary to provide whatever support the financial system needs and the broader economy needs in case things [in Europe] should worsen," Fed chairman Ben Bernanke said Wednesday, at a press conference following the Federal Open Market Committee's decision to leave the Fed's target interest rate on hold at between zero and 0.25%.

The FOMC also agreed to continue with 'Operation Twist' – the policy of buying longer-dated Treasury bonds and selling shorter-dated ones – as well as its program, begun in September, of buying mortgage-backed securities.

Richard Fisher, Narayana Kocherlakota, and Charles Plosser – the three FOMC members who opposed accommodative measures in September – voted yesterday in favor of maintaining them.

"We are not contemplating at this time any radical change in [monetary policy] framework," Bernanke said – a statement interpreted by some as a rejection of suggestions that the Fed should target nominal GDP.

"Bernanke did not go out of his way to dampen growing expectations [of another round of asset purchases]" reckons Dana Saporta, director of US economics research at Credit Suisse. 

"If anything, he stoked those expectations."

"Reasons to Buy Gold seem as numerous as ever," says a note from Mitsui Precious Metals this morning.

"Although as this week has already shown, the usual caveats about short-term volatility apply."

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