Gold this week was heavily influenced by the European debt crisis, with prices rising or falling based on the latest the news from Europe. Tuesday morning saw gold reach its lowest point for the week, with the price dropping as low as $1,708. The highest price for gold during the week came late Wednesday afternoon, when the precious metal rose to more than $1,744. By week’s end, Gold was responding to the European news positively, rising along with the euro. Oliver Pursche, co-portfolio manager of the GMG Defensive Beta Fund, said, “When you have so much retail and ETF interest (in Gold), you’re not going to trade on the fundamentals on the short term. (But I) would not be surprised to see higher Gold prices longer term.”
Monday started with the focus still on the debt crisis in Europe, with Gold prices dipping and U.S. stock futures rising amid optimism regarding a resolution to the eurozone debt crisis. With a European Union summit planned for the end of the week, Rockwell Global Capital’s Peter Cardillo said, “The (stock) rally continues, but it’s all about Europe and any disappointing news out of Europe later in the week could mean an about-face for this market.” French President Nicolas Sarkozy and German Chancellor Angela Merkel found themselves under fire to agree on a “master plan” regarding the budget for the eurozone. They announced their proposal for the “Stability and Growth Pact” treaty to assist with strengthening the eurozone financial policy to reinstate confidence in the shared currency. Commerzbank, in response to news that the European Central Bank (ECB) was expected to cut interest rates, stated in a note, “This should lend support to the Gold price, since the opportunity costs of holding Gold will remain low.” Also, the Institute for Supply Management (ISM) reported that the U.S. service sector performed at a slower pace than expected in November. Standard & Poor’s (S&P) came out with very harsh wording in its credit rating review for the eurozone, warning fifteen countries (including France and Germany) about a possible credit downgrade.
On Tuesday, optimism that eurozone leaders would come up with a concrete plan to shore up the debt crisis continued to spread, spurred on by investor belief that Standard & Poor’s (S&P) downgrade warning to 15 European countries the day before would help that process along. In a commentary written for Marketwatch, author Satyajit Das stated, “What happens in Europe will not stay in Europe. The shock will be rapidly transmitted through trade, investment and the financial system to the rest of the world. It may truncate the nascent U.S. economic recovery.” There was fear that the European Financial Stability Facility also might face a downgrade of its respected credit rating if even one of the bailout fund’s six guarantors (Germany, France, the Netherlands, Finland, Austria, and Luxembourg) was downgraded from a rating of AAA. U.S. Treasury Secretary Tim Geithner was in Germany Tuesday to attend the three-day eurozone summit aimed at finding a European economic resolution. He indicated his support for the German-French initiatives pushing closer European financial cooperation, and urged policymakers to look to central banks to help provide protection from the growing debt crisis.
Wednesday saw many investors waiting on the results from Thursday’s European Central Bank meeting, in which the result is expected to be a lowering of interest rates. The big card on the table for the meeting was the proposed new EU treaty that would include tougher budget rules. Treasury Secretary Timothy Geithner headed to France to continue promoting the American agenda while meeting with French, Italian, and Spanish officials. Geithner stated, “I have a lot of confidence in what the president of France and the minister are doing, working with Germany to build a stronger Europe.” The U.S. senate appeared to put “too-big-to-fail” banks back on its radar, with Senator Sherrod Brown holding a hearing Wednesday regarding “new oversight authority to shield Main Street from Wall Street megabank risk.” Comments made by German officials and the new economic figures had diminished hopes that a resolution would come out of the EU summit planned for Friday.
News about the European Union drove major market movement during this past week. Precious metals prices and U.S. stocks were both down Thursday morning after the announcement from the European Central Bank (ECB) that it would be cutting its key lending rate from 1.25% to 1%, while also introducing further measures in an effort to ease lending for banks. Investors appeared to be hoping for news that the ECB would aggressively begin to buy bonds. However, ECB President Mario Draghi announced the opposite. European Union leaders meeting in Brussels came to an agreement on new fiscal rules for stricter budget discipline in the eurozone. However, EU leaders were unable to come to an agreement on how to shore up the EU’s future permanent rescue fund, and the looming question about whether any new agreement would require major changes to the EU treaty wasn’t even brought up. French President Nicolas Sarkozy stated, “Never has the risk of Europe exploding been so big.” The German Chancellor Angela Merkel offered, “The euro has lost credibility, and this must be won back. We will make clear that we will accept more binding rules.” Not everyone was convinced. Scotia Capital economist Alan Clarke said, “One step forward, two steps back. The eurozone leaders might as well not bother. Pack their bags, go home, enjoy the weekend, and do their Christmas shopping.” In the U.S., weekly jobless claims fell by 23,000 to 381,000, a better number than the expected drop of 9,000.
By Friday, after overnight talks in Belgium, 23 European nations (including all 17 eurozone members) were planning on a new intergovernmental treaty for fiscal discipline, which would include caps on Gross Domestic Product deficits, consequences for deficits exceeding 3% of GDP, additional contributions to the International Monetary Fund, and other features. However, not every EU member was on board for a revision of the treaty. British Prime Minister David Cameron, after telling journalists present that Britain “would never join the euro,” argued for regulatory exemptions that would protect the United Kingdom’s financial services industry. He said that the ideas proposed by French President Sarkozy and German Chancellor Merkel were not something he could “in good conscience” take back to the UK and put to a vote in parliament. In response, President Sarkozy said, “Our British friends made unacceptable demands.” Also on Friday, Moody’s Investors Service downgraded three French banks based on the continued negative economic outlook in Europe, explaining, “The probability that the (banks) will face further funding pressures has risen in line with the worsening European debt crisis.”
WEEKLY SPOT PRICES
Gold: Spot Gold prices opened this week at $1,735.00. The high was on Thursday, Dec. 8th at $1,760.50, while the low for the week occurred on Friday, Dec. 9th at $1,704.90. Gold ended the week down $22.10 at $1,712.90. This week, the most popular Gold bullion products were 2011 Gold American Eagles, 1 oz. Pamp Suisse Gold Bars, and 2011 1 oz. Gold Maple Leafs.
Silver: Spot Silver prices opened this week at $32.36. Silver reached a high of $33.09 on Monday, Dec. 5th, while this week’s low for Silver occurred on Thursday, Dec. 8th at $31.43. Silver ended the week down $0.08 at $32.28. The most popular Silver products on APMEX.com this week were 2011 Silver American Eagles, 2011 Silver Maple Leafs, 1 oz. Silver Buffalo Rounds and 10 oz. APMEX Silver Bars.
Platinum: Spot Platinum prices opened this week at $1,533.60 and ended the week down $16.60 at $1,517.00. Popular Platinum products this week included, 1 oz. Platinum Bars, 1/10 oz. Platinum American Eagles, and 1 oz. Platinum American Eagles.
Palladium: Spot Palladium prices opened this week at $643.80 and ended the week up $43.50 at $687.30. Palladium investors preferred 1 oz. Pamp Suisse Palladium Bars and Palladium Canadian Maple Leafs this week at APMEX.com.
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