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Weekly Market Update Week Ending 14th October 2011

MARKETS GAIN GROUND AS EUROZONE COUNTRIES RATIFY EFSF PLANS

Market direction is currently being dictated by global economic news. Hot on the heels of last week’s steadying ship statement from European leaders came a raft of EFSF (European Financial Stability Fund) ratifications from Eurozone member countries. The final one of these, the Slovakian ratification, came toward the end of the week and helped to see equity and precious metals markets close higher.

With all ratifications now in the fund can expand to €440 billion, and can now buy sovereign debt and recapitalise Europe’s banks that are super-exposed to member countries’ sovereign debt. Slovakia’s commitment is €7 billion Euros. This does not seem very much when the USA talks of debt in the trillions of dollars, but consider that this commitment – effectively to provide money to support other member nations – amounts to 7% of its annual gdp and one starts to understand the enormity of the issue.

After markets had closed, Christine Lagarde, IMF President, announced Saturday that it believes the global economic situation has got worse over the last three weeks, and that debt concerns in advanced economies are beginning to spread to the merging markets.

The cash gold price increased by a little over 1.5% over the week, closing at around 1680, but investors should expect some fireworks in the coming few days as markets digest the IMF’s comments.

ETF FOCUS

SPDR GOLD SHARES (GLD)

The SPDR Gold Shares ETF is a product based fund, whose share price is based upon the value of the gold underlying them. This gold is held in the form of 400-ounce London Good Delivery Bars, and housed for safe keeping in the vaults of HSBC Bank USA or its sub-custodians.

The fund was incorporated in November 2004, and currently has net assets of more than $72 billion. Its aim is to give investors an easy path into investing in physical gold, without the extra costs necessary, such as delivery and safekeeping charges.

Each share is underscored by the holding of1/10 of an ounce of physical gold, though from time to time the fund may hold some cash. Shares cannot be created without the purchase of the equivalent amount of gold.

The shares of the ETF are listed on the New York Stock Exchange, and also in Japan, Singapore, and Hong Kong.


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