Cyprus’ financial crisis and its effect on gold

Gold traded in a paltry $4.50 range overnight as the aftereffects from the Cyprus headline that initially agitated the markets lost steam. With Cyprus being on the verge of insolvency, EU countries announced over the weekend that they would withhold bailout measures unless the Cypriot government imposes a levy on retail bank accounts. This, in effect, would mean that the government would be able to reach into depositors’ accounts to pay for part of the euro-zone bailout. Considering that Cyprus’ economy is equal to only .2% of Europe’s total GDP, some might think that the attention that it received yesterday was a bit overblown. On the other hand, this proposed action may be a harbinger of things to come in the Euro zone in general. As such, credit spreads widened and volatility was bought. The USD gapped higher against the euro on the heels of the Cyprus story yesterday. Gold, however, rallied in the face of USD strength as it was able to catch bids as a safe haven hedge. It closed above the pivotal $1,600 figure and has been able to maintain its footing so far today. From here, first resistance is coming in at $1,620 and then a more significant target is the convergence of the 50 day moving average and a Fibonacci level around $1,630. Silver is trading without conviction and is following the yellow metal’s movements. The Federal Reserve begins its two day meeting today. It will culminate with tomorrow’s rate decision at 2 PM EST.