France Downgraded, Gold Price Moves Up

This morning the gold price has managed to retain its 1 per cent rise, achieved yesterday, as tensions in the Middle East escalate resulting in further deaths and instability. Yesterday saw the best one-day performance from the yellow metal in nearly a fortnight.

There are some pressures on gold this morning following Moody’s downgrading of France’s credit rating, from Aaa1 to Aaa, seeing the dollar gain some strength as a safe-haven. This also saw the euro come off its two week high.

At the time of writing, gold is at $1,733.37/oz. It is expected to trade within the $1,700-$1740 range as we await the outcome of the US’s fiscal cliff discussions. Hopes that those involved in policy-making will avoid the cliff saw gold in a risk-on trading session yesterday prior to the French credit rating announcement.

Holdings in gold-backed exchange products dipped slightly yesterday, but remain near record highs seen at the end of last week.

Future looks good for gold investment
In a study compiled by Bloomberg, 16 analysts believe next year will be another good year for gold investment predicting the gold price will rise every quarter. This is not surprising given the promises and policies politicians will continue to make next year in regard to growth, which will have to be printed from nowhere.

Those who were still looking for reassurance that gold investment is the right way to go will feel slightly buoyed by Soros’ spending in the Q3 this year, Soros Fund Management LLC increased its holdings in the SPDR Gold Trust by 49 per cent in the third quarter.

This week is a quiet week for data releases due to the Thanksgiving holiday, which commences Thursday, though many people will begin their holiday preparations tomorrow. Today, plenty of construction-based data in the US will be released as well as Redbook data which will give some indication on the health of retail sales.

US Treasuries are fluctuating prior to Bernanke’s speech to the Economic Club of New York, where he is expected to defend his ultra-easy monetary policy stance. This is amidst speculation the Federal Reserve will increase bond purchases to spur the economy on.

Later today the Eurogroup of finance chiefs will meet in Brussels as they attempt to pass a deal over the next tranche of cash for Greece. In an attempt to placate their lenders, the Greek government passed laws yesterday which will help enforce budget targets and privatisation. It is generally believed the Greeks have done enough to convince those in Brussels that they should receive new funds, however Germany is still resisting a second restructuring of Greece’s outstanding debt, therefore the agreement reached today is expected to be only ‘cosmetic’.

Thoughts on impending financial crisis
Here in London we’re feeling pretty bullish, apparently, on the prospect of being hit by another financial crash. According to a report out yesterday from the Bank of England workers in the City are now feeling as confident about the economy as they were back in early-2011. However, sovereign risk was cited by 94% of respondents as the factor which would have the greatest impact on the UK financial system should it materialise.

Yesterday we read an interesting story on the Spanish Housing industry; in an attempt to relieve themselves of the 700,000 unsold houses the country will be announcing plans to offer foreign buyers residency permits when they purchase houses worth more than 160,000 euros. This is primarily aimed at Russian and Chinese customers.

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