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Tuesday, January 22nd, 2019 - Buy Gold - Bringing you trusted gold news and gold investing information since 2006

Weekly Gold Market Review – Week Ending 28th October 2011

Investors return and push precious metals higher

This week saw the gold price strengthening, as investors took on board the implications of the deal thrashed out between the Finance Ministers and Leaders of the Eurozone countries. This deal will see the EFSF increased to €1 trillion, the banks recapitalised by €108 billion, and those creditor banks to Greece required to write down those debts by 50%.

The deal goes further than many market observers believed it would, but after the euphoria of finally seeing the Eurozone countries agreeing a deal questions are now being raised as to its long term effectiveness.

Major banks have already begun to balk at the new requirement a capital ratio of 9%. Next year will see over €1 trillion of bank debt needing to be refinanced, and banks may struggle to sell bonds to achieve this. Indeed, there has already been an increase in calls for short-term funding needs from the banks to the European Central Bank.

It may be that all the Eurozone agreement has actually achieved is to buy a little more time. Governments across Europe are struggling with budgets, raising taxes and cutting spending. This is having a negative impact on the private sector, which is where politicians expect the driver of growth to come from. This latest phase of staving off absolute disaster will see analysis of the situation move from sovereign debt, to include inability to spend and the impact on the wider economy.

Meanwhile, investors across all asset classes took heart and markets across the board rose in response to this week’s developments. Equity markets have gained by around 4 – 5% in anticipation of the Eurozone deal, and then its realisation.

Gold posted its biggest weekly gain since August. Having hit $1752 an ounce in Asian trade on Friday, the price eased a little in London to close at $1742.90, an increase of 6.1% on the week. Silver closed the week at $35.28 an ounce, an incredible rise of over 14% on the wee and its biggest weekly gain since May 2009. After a period of price declines and an icy reception from investors, it would seem that the precious metals have come in from the cold and back into favour with those investors that were shunning them.

The big winner from the current economic scenario s likely to be China. It is China who has the financial firepower to support the EFSF and buying bonds necessary to do so. The country will be able to demand better trade agreements and a higher standing in the political world to do so. French President, Nicolas Sarkozy, and Chinese President, Hu Jntao, have already been speaking on the phone. Sarkozy’s statement afterwards of “Our independence will in no way be put into question by this” sounds ominous. A leading member of China’s Central Bank, Li Daokui, has added a little more spice to impending negotiations when he said, “It is in China’s long-term and intrinsic interest to help Europe.”  He then went on to position China by adding, “They are our biggest trading partner but the chief concern of the Chinese government is how to explain this decision to our own people. The last thing China wants is to throw away the country’s wealth and be seen as just a source of dumb money.”

It may be that China drives a hard bargain to keep Europe’s finances afloat. In the meantime, China continues to be the world’s largest buyer of gold.

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