Loose Policy to Boost Demand for Gold
Posted by James Randolph on July 10, 2012
July 10, 2012 – Prices for gold reached $1,597 per troy ounce in intraday trading on Tuesday on the London market, making the high of the week, as stock markets also gained after news surfaced that Spain should be receiving assistance for its troubled financials institutions from the Eurozone this month.
The spot price of silver was also up, as high as $27.61 per tory ounce, with the majority of commodities level for the day.
Government bond prices for the US, UK, and Germans were down as currency markets the dollar lost a bit of won ground to the euro, which has been coping with the rate cuts of last week.
“Loose monetary policies, with a scope for more aggressive balance sheet use in the US and Europe will keep real [interest] rates in most reserve currencies low (or negative) during 2012,” according to a note from Merrill Lynch released yesterday.
“We continue to believe that this will allow investor demand to remain strong and prices to reach our $2,000 an ounce target by the end of the year.”
The Spanish government has been allowed an extra year to meet a 3 percent deficit-to-GDP target set as a part of its lending terms. Eurozone finance ministers meeting in Brussels Monday have allowed the Spanish government until 2014 to meet that target.
James Nixon, a chief European Economist at SocieteGenerale believes this hardly offers Spain a reprieve as major adjustments must now take place over three years instead of two years.
During the same meeting in Brussels, currency finance minsters were also able to find a political understanding for the use of Eurozone bailout funds to recapitalize Spanish banks directly following a single European banking supervisor has been established for the year.
In June, the Eurogroup agreed to allot €100 billion to the Spanish government to restructure the troubled banking sector. While officials affirm there is no emergency in the situation, the money is set for use in the advent of urgent need. It is the objective of the agreements made that markets will recognize how much money is available to them and act accordingly.