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Gold News: Monthly Review December 2011

Gold Weakens to halve Yearly Gain

Precious metals eroded most of any gains made through 2012 in December, as values were dominated by news from Europe and downward pressure was exaggerated by a lack of buying from India (as highlighted in this blog last week)

December reasonably positively, as European leaders spoke bullishly of the possibility of a new debt relief package and a new treaty for the financial stabilisation of Europe. However, general commodity prices ease due to the threat of European markets moving into recession, and further interest rate easing is seen as possible.

Several important European Union meetings begin with leaders unable to come to a quick consensus on plans put forward to promote market confidence in the Eurozone and the Euro. The European currency continues to weaken against its main currency partners throughout the month, though a small respite is felt when Euro leaders do finally come to an agreement to ‘work toward’ a treaty. The treaty proposed will give greater powers to the centre, requiring member states to have their budgets passed by the European Union and placing sanctions on all those that exceed 3% of gdp.

Investment markets trade down, as investors reflect on this. There are currently no leading Eurozone countries whose budget does not exceed 3% of its gdp, and worries over collapsing government spending in the Eurozone starts talk of impending recession. Talk of sovereign selling of gold and silver reserves put further pressure on the precious metals, and gold breaks down through the technically important $1600 level.

Seeking to bring further stability to the area, the ECB announces that it is to make €487 billion available to 500 banks across Europe, as loans for a period of 3 years at 1%. Simultaneously, it announces an easing of financial capital requirements with it by European banks., and a broadening of accepted collateral that would make refinancing easier. The Eurozone leaders call on the IMF and ECB to do more for it.

The death of Kim Jong Il, North Korea’s leader, brings further worries to jittery markets, though gold responds with a small rally as investors eye its safe haven qualities.

Gold ends the month nearly 10% lower, and gains on the year are halved to around 11.6%.

 

 


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