The Daily Nugget – Spain downgraded, gold holds its poise

Early this morning the gold price appeared to be holding steady after dropping slightly yesterday. Overall this week it has lost more than 1%. However in the last hour it has begun to recover and currently sits at a $1,767. Those who watched gold’s rise last month and decided to buy gold must not feel disheartened as long-term confidence in the yellow metal remains strong, as the continuous rise in ETF holdings demonstrate.

Trust central bankers or buy gold?

Loose monetary policy and quantitative easing from both the Federal Reserve and other central banks are expected to provide support to both the gold and silver price, hopefully preventing a sharp pullback, providing a good opportunity to buy gold bullion.

Whilst European stocks appear to have recovered this morning from a fairly miserable week, Spanish stocks have been weighted down; yesterday, Standard & Poor’s downgraded Spain’s debt rating to just one level above junk, from BBB+ to BBB-,  due to ‘mounting economic and political risks’ as the country’s government considers a second bailout. The rating downgrade was said to be unexpected.

As a result of the downgrade, gold prices fell in Asian trading, however, they appear to have recovered somewhat in recent hours.

Tomorrow and Saturday the IMF and its 188 members are set to meet. Already the focus appears to be on Europe and the bubbling crisis, European leaders are said to be keen to ensure not all attention is on the Eurozone crisis, although this seems unlikely considering the stretch of the crisis’ tentacles and its effects upon the rest of the world.

In the press conference ahead of the meeting, Christine Lagarde told reporters she was expecting both swift action and cooperation from the leaders of member countries when it comes to dealing with the crisis.

Quote of the day from the murmurs of the preamble to the IMF conference was courtesy of Professor Axel Dreher, a German economist and an IMF expert, “Europe will eventually use the IMF as a scapegoat when it  loses patience with Greece. Then the IMF could first refuse to make the next payment for Greece and Europe would just follow suit.” The IMF has indicated that it will not lend any more money to Greece and has advocated that Greece be given more time to meet its fiscal targets and debt reductions.

Key data from the Eurozone this morning is consumer prices from both France and Spain, both have proved to come in under estimates. Later on today the US’ international trade data is set to be released as well as weekly initial claims figures.

Reuters report this morning that Hong Kong’s net gold outflow to China in August, has dropped by 26% from a year ago, this is attributed to the high gold price and the slowdown in economic growth. Physical gold demand across Asia remains disappointing.

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About the Author

Jan SkoylesJan Skoyles is Head of Research at The Real Asset Company, a platform for secure and efficient gold investment. Jan first became interested in precious metals and sound money when she met Ned Naylor-Leyland whilst working alongside him in the summer of 2010. Jan then went on to write her undergraduate dissertation on the use of precious metals in the monetary system. After graduating from Aston University in 2011 Jan joined The Real Asset Co research desk. Her work and views are now featured on a range of media including BBC, Reuters, Wall Street Journal, Mail on Sunday, Forbes and The Telegraph. She has appeared on news channels including Russia Today to discuss the gold price and gold investing. You can keep up with Jan's commentary by subscribing to our RSS feed Gold Investment News.View all posts by Jan Skoyles