Weekly Gold Market Review – Week Ending 18th November 2011

Gold News: Gold Gives Ground After a Month of Gains

After gaining through much of the last few weeks, gold gave up some ground this week. Though recovering a little on Friday, the price had retreated since Monday, and most notably on Thursday in reaction to a poorly received Spanish government bond auction. In order to get the issue away, the government has had to pay a record 6.97% to borrow 43.56 billion. This is up from 5.43% when Spain last auctioned a ten-year bond on October 20th.

Investors were encouraged to sell their gold holdings in order to pay for other positions, and the price of gold ended the week at $1723.20, a fall of 3.6%, the first fall since the last week of September.

Standard Bank have warned that if liquidity is squeezed further in the Eurozone markets, then commodities prices will suffer, with gold and silver caught in the melee to raise cash. Much of what is happening in the wider market – with debt, inflation, and the economy a constant concern – would normally drive investors to the safe haven of gold. At this present moment, however, investors are selling gold to buy dollars and pay for funding requirements elsewhere.

Heavy falls in investment markets on Thursday were followed by stable markets on Friday, as equity, bond, and precious metals investors gathered their thoughts, and their breath.

British banks have been cutting lending to their Eurozone counterparts. The Financial Times reported this week that such lending has fallen by 24% in the third quarter, as the UK’s four largest banks shied away from increasing exposure to the beleaguered banking sector in continental Europe.

But its not just the British banks seeking to cut exposure. Partly in response to stricter capital adequacy requirements, the Eurozone banks have been reducing their exposure to Eurozone sovereign debt. The ECB is now seen to be the only significant buyer of Eurozone bonds, though it has a limit of €20 billion per week.

Market watchers now see an increasing chance of further quantitative easing in Britain and Europe. Should this occur, it should be supportive at the very least for gold prices going forward.

Meanwhile, to watch for is the deadline date of next Wednesday for the US Congressional Committee to agree on $1.2 trillion of deficit cuts and tax increases. If no agreement can be found, then automatic cuts would come into force from January 2013.

It’s all fun in this world of unbridled debt!

This entry was posted on Sunday, November 20th, 2011 at 7:21 pm and is filed under Gold Investing. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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