GOLD NEWS: Weekly Market Update for the week ending 20th January 2012

Gold breaks through technical resistance, signals turn bullish.

Increased buying from India, together with a better investment environment overall, sparked further increases in the price of gold this week. Physical cash gold ended the week at $1665.90, an increase of 1.7% on last week’s closing level and a close above last week’s high of $1662.

Greece’s renewed efforts to find a settlement with its private creditors in order to receive its bailout funds next week has been received well in the markets, and a strong level of resistance seems to have formed in the gold price at $1645. This week, having burst through this level on Monday/ Tuesday, market bears tried on three occasions to push the price back through. On all three attempts, buyers caused a fast and furious bounce. Market indicators have now turned bullish for the yellow metal.

Company reports in the US have been mixed this week, with the banking sector continuing pressured whilst the technological sector is faring a little better. Better than expected jobs data was augmented by subdued inflation numbers. Chinese data showed growth a little better than expected, though continuing to slow in its pace of advance.

Confirmation came last weekend of the extent of Standard and Poor’s downgrades to European sovereign debt, with only Germany escaping unscathed: the credit ratings of France, Spain, Portugal, and Italy were all cut by a notch. Most other Eurozone countries put on alert as to the potential for further downgrades.

The latest debt offerings, toward the end of the week, saw successful bond auctions from Spain and Italy, and yields are drifting down. During the week, the IMF announced an increase of $500 billion to its funds which could be used to help shore up the finances of the Eurozone. The situation continues to develop, and investors have started to eye gold as both a hedge and speculative play at current levels.

The ECB’s €489 billion funding of the banks last month has, for the time being, averted a European wide credit crunch and money is beginning to flow around he system. But it may only be a question of time until further funding is needed, unless, of course, the troubled European economies can turn their fortunes around.

Helping sentiment in the gold market was India’s decision to cut the proposed tax on unrefined gold imports to 1%.

Adding further upward price pressure to the gold price was Turkey’s decision, last year, to allow its banks to count gold as part of their reserves. This resulted in massive buying of gold from Turkey through October and November, and is seen as an option for other countries to follow suit.

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