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Weekly Market Update – Week Ending 21st October 2011

Weekly Gold Market Data

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Gold Posts First Weekly Loss of October As Investors Remain Cautious

Gold traded steadily lower during the first four days of the week, though it did recover some poise on Friday as investors came back into the market ahead of the weekend’s meeting of European Finance Ministers. Having fallen from last week’s closing level of $1680.3 down to test $1605, a drop of over 4%, cash gold rallied on Friday to end the week at $1641.8. Though down on the week by some 2.3%, the rally of more than 2% on Friday is, perhaps, a sign that investors are seeking to find an entry level.

It is hoped that this weekend’s European Union Summit will give rise to an agreement to further bolster the EFSF, and produce an a4rrangement which will ring-fence Europe’s financial institutions from an ‘orderly default’ by Greece on its debt obligations.

News in this regard has started to flow from the meeting, with Britain’s Chancellor of the Exchequer, George Osbourne, saying that after 10 hours of talks on Saturday Europe’s Finance Minister’s had agreed to recapitalise the banks by €108 billion. He also said that he felt a final agreement on the whole issue was likely to come on Sunday.

On cue, and to highlight the difficulties and differences between the member states, Germany’s Angela Merkal announced ten minutes later that she could see no agreement being reached on Sunday, and that she ‘hoped’ for the matter to be settled at a meeting on Wednesday 26th October.

It seems likely that the outcome of the meeting will be a fluffy statement that states Europe’s desire to put the matter to bed, and that the member states are agreed that they will take action. It may even state the aims of that action. What is unlikely, however, is that any detail of policy or proposal will emerge. This will leave markets dissatisfied and looking toward another nervous week.

France is said to favour creating a bank from the EFSF, whilst Germany wants to use EFSF funds as an insurance against losses on debt issued by beleaguered member sates. Europe’s two largest states at loggerheads.

Meanwhile Standard & Poors, the ratings agency, has conducted stress tests for a number of Eurozone countries looking at two scenarios – a double dip recession and a double dip recession with a rise in interest rates.

Under both scenarios, the agency has said the sovereign ratings for France, Spain, Italy, Ireland, and Portugal would be lowered by one or two notches.

In India, purchases of gold have increased ahead of next week’s Diwali festivities. One bullion dealer at a state owned bank has said that he is seeing large buy orders around $1600.

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