Gold Prices Fall After "Weak" Greek Reforms Rejected, ECB Money "Has No Stigma" says Draghi

Gold Prices were heading for their second weekly fall Friday lunchtime in London, as they drifted down towards $1700 per ounce following European ministers' rejection yesterday of the latest austerity proposals from Greece.

Silver Prices also traded lower, hitting $33.27 per ounce – 1.4% down on last week's close.

Stocks, commodities and the Euro all fell, while the Dollar gained along with prices for major nation government bonds.

"Gains in the US Dollar and consistent disappointment from the European Union regarding the Greece debt deal are curbing any gains in gold," reckons Pradeep Unni, senior analyst at commodity brokerage Richcomm Global Services in Dubai.

"People are just throwing in the towel because we didn't see a rally," adds Afshin Nabavi, senior vice president at Swiss precious metals refiner MKS.

Spot market Gold Prices were down 1.2% for the week Friday lunchtime, hitting $1706 per ounce, their lowest level since Jan.25, the day the US Federal Reserve confirmed its policymakers expect near-zero interest rates until at least late 2014.

Eurozone finance ministers yesterday dismissed a reported €3.3 billion package of spending cuts presented to them by Greece's leaders, who have now been asked to find an additional €325 million in savings.

"No disbursement before implementation," said Luxembourg prime minister Jean-Claude Juncker, who chairs the Eurogroup of single currency finance ministers.

"We can't live with this system where promises are repeated and repeated and repeated and implementation measures are sometimes too weak."

The Eurogroup also suggested that there could be greater external involvement in the Greek economy, with the aim of improving tax collection and speeding up privatization of state assets. German finance minister Wolfgang Schaeuble meantime said the ministers "will certainly not discuss a top-up" of Greece's €130 billion second bailout.

"If we see the salvation and future of the country in the Euro area," said Greek finance minister Evangelos Venizelos, "[then] we have to do whatever we have to do to get the program approved."

"Venizelos, like some officials before him, is playing the 'in or out' card," says this morning's note from Standard Bank currency analysts Steve Barrow and Jeremy Stevens.

"We suspect [the Eurogroup's conditions] will be delivered, but not without some acrimony."

Thousands took to the streets in Athens Friday as unions called a two-day protest strike, the second this week following Tuesday's 24 hour action.

"With Greek elections planned for April 2012, it may be the case that the politicians who sign off on agreements to receive Euroland aid next week may be replaced quite swiftly by less amenable types," notes one Gold Bullion dealer here in London.

If the second bailout is not approved, Greece will be unable to pay over €14 billion of debt that matures on March 20.

"[Greek politicians] must get this deal agreed really within the next few days to enable them sufficient time and have the new bailout money disbursed before that bond is due," says Tony Stringer, managing director of global sovereigns at ratings agency Fitch.

"If they don't manage to achieve that, then it could be in the realm of a disorderly default."

European Central Bank president Mario Draghi meantime denied a suggestion put to him at Thursday's  press conference that the ECB's three year longer term refinancing operation – at which European banks can borrow from the central bank at low rates – represents "hidden government financing" that some banks would prefer not to access.

Deutsche Bank chief executive Josef Ackermann said last week that: "the fact that we have never taken any money from the government has made us, from a reputation point of view, so attractive with so many clients in the world that we would be very reluctant to give that up."

"There is no stigma whatsoever attached to these facilities," said Draghi yesterday, adding that some bankers' statements were "statements of virility" and that many banks whose chiefs have made such comments have actually accessed the LTRO or other ECB credit facilities.

The ECB also announced Thursday that it is changing the rules on collateral banks can post against their ECB borrowing to widen eligibility, although the Governing Council decision was not unanimous.

Regulated commodity futures exchange CME has lowered its margin on Gold Futures trades, along with margins on silver and copper.

"The announcement...has failed to inspire much interest [in gold]" says Marc Ground, commodities strategist at Standard Bank.

CME raised its margin on Gold Trading in both August and September last year, "contributing to the sharp fall" in Gold Prices seen over those weeks, according to a note from Commerzbank this morning.

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