Gold News – Weekly Market Update Week Ending 9th December 2012
Gold Retreats as Eurozone Members Come to Debt Agreement
After last weeks gains, gold investors remained cautious ahead of the Eurozone summit on Wednesday night. Though some profit taking was seen through Monday and Tuesday morning, losses had all but been reversed as a lack of news from the summit caused a little nervousness in the middle of the week.
However, when the news did break, it was seen as broadly positive for investment markets and negative for the precious metals as money flowed out of gold and silver and back into equities. After trading as high as $1747.20 on Monday the gold price retreated and posted a loss of a little more than 2% on the week, closing at $1710.70.
The 17 Euro currency members, and nine others, signed an agreement which means that budgets must be submitted to the European Commission for approval. Automatic sanctions (not yet explained) will be levied on any member state whose annual budget deficit exceeds 3% of GDP. Currently, France’s budget deficit is 5.7% of GDP, Spain’s is 9.3%, Italy’s is 7.7%, Greece’s 8.5%, Germany’s is 3.3%… and the list goes on. Quite how these deficits are to be cut so drastically has not been explained either.
David Cameron, the UK’s Prime Minister, was the only leader not willing to sign the agreement. UK’s budget deficit is running at around 10.5% of it GDP.
Aiming to offer further financial support to indebted Eurozone nations, the Stability Fund has been increased by €200 billion, and the start date for this bought forward to January 2012. The ECB cannot provide direct support to beleaguered European nations, and its cap of €20 billion of bond purchases per week remains in force. In reaction on Friday, Greek, Italian and Portugese bond prices retreated pushing interest higher again.
Clearly the markets are beginning to see the agreement as lacking reach and depth, and this is a situation that will continue to dominate investment decisions for some time to come.
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