Weekly Market Recap – February 17, 2012

Though recent movement has tracked currency fluctuations, geopolitical tensions remained a key driver for the price of Gold this week. Lately, Gold prices in the short-term have become more sensitive to moves in the euro/dollar exchange rate. According to one precious metals analyst, “Significant macroeconomic and geopolitical risk and the appalling fiscal state of most major industrial nations means that Gold will almost certainly eke out further gains in all currencies in the coming months.” In a recent letter to investors, noted billionaire hedge fund manager John Paulson said, “By the time inflation becomes evident, Gold will probably have moved, which implies that now is the time to build a position in Gold.”

According to the World Gold Council’s annual report, the demand for Gold reached an all-time high in 2011, largely due to increased buying in China, India and Europe. Marcus Grubb, managing director for investment at the World Gold Council, said, “It is likely that China will emerge as the largest gold market in the world for the first time in 2012.  What is certain is that the long-term fundamentals for gold remain strong, with a diverse and growing demand base, coupled with constrained supply side activity.” Another significant Gold-buying event covered in the report was the fact that in 2011, Gold purchases by central banks far exceeded purchases in 2010. In 2010, central banks bought 77 metric tons of the yellow metal. In 2011, they bought 440 metric tons, an increase of 471%.

All this week, true to form, as the chances of a Greek bailout improved, the dollar went down while pushing the value of the euro up. Greek lawmakers voted 199-74 at the beginning of the week to pass the austerity measures demanded by eurozone finance ministers. The city of Athens experienced violent protests and rioting in response to the austerity vote. Despite the passage of the measures, the mood in the eurozone was mostly negative, as many pointed to the fact that such measures had been previously agreed to, but were never implemented. The Financial Times reported that some European nations were considering only giving conditional approval for a bailout until they could be convinced that the latest austerity measures will be implemented fully.

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