Gold Bounces from Technical Support and Consolidates
Gold closes the week almost unchanged from last week’s close, at $1713.20.
Gold was chased lower in the middle of the week as investment markets plunged with rumors that the Greek debt swap for private creditors had fallen apart. Such an event would have caused the country to miss deadlines for its $130 billion bailout funds, and sent the indebted nation into default. However, Thursday saw the deal accepted by 83% of creditors, and forced upon the majority of the remainder.
Adding to the general gloom was China’s announcement that it expects its growth rate to be just 7.5% from an earlier downwardly revised 8%, and India, Australia, Japan, and Brazil all weighed in with data supporting worldwide economic slowdown. High oil prices amidst Middle East tension are adding to concern, although strong US jobs data is pointing to a better economic situation in America. January’s jobs number was revised upwards, and with February seen to have added another 227,000 jobs, bringing the three-month average to 250,000. However, though seen bullish for the economy, credit data that showed consumer borrowing hitting three year highs at an annualized growth rate of 8.6% should prove positive for inflation hedging assets such as gold and silver.
In China, inflation figures point to an easing of inflationary pressures although with growth slowing the People’s Bank of China may decide to ease monetary policy further by printing more money. This will add to inflation in the medium to longer term and is seen as long term bullish for gold.
Earlier in the week, Hong Kong announced that Chinese imports of gold from Hong Kong had fallen by 15% in January from February, partly as a result of the Lunar New Year.
As the gold price fell on Friday to the $1675 level after the US jobs data release, London dealers noted that buyers for physical gold stepped into the market. The price then bounced strongly off the technical support at around the lows of the day, helped by short sellers covering positions, to finish the week a couple of dollars to the gold at $1713.20.
Whilst the Greek situation has grabbed most of the headlines, the ECB has pumped around €1.3 trillion into the European economy in the last six months, and Germany’s Central Bank has been seen to borrow in large amounts from the ECB. This extra money supply, as it filters through, is likely to lead to higher inflation, which again is bullish for the gold price.
As the Greece situation has, for the time being, been settled, Deutsche Bank was reported as borrowing €10 billion from the ECB loan fund to help fund its operations in Spain and Italy. Clearly, the European sovereign debt fiasco has a long way to play out yet.