Disappointment over the European Union leaders’ summit drove precious metals down last week including gold ETFs.
Precious metals rallied early last week as investors hoped for some indications at the Thursday-Friday EU leaders’ summit that Spain would soon be taking some form of sovereign bailout. Unfortunately no new material information was
revealed, driving the Euro down (US dollar up), with gold and other precious metals following swiftly behind as investors cut their extended net long futures positions.
The Spanish government appears to be waiting for regional elections to successfully pass before requesting what they appear to view as a politically damaging bailout. The incumbent Popular party strengthened its majority in Galicia in weekend elections, while the government lost further ground in the Basque region. [Spain Bailout Could be Next Catalyst for Gold ETFs]
With Spanish bond yields near their lowest point for six months and Italy able to launch an €18bn bond sale (its largest ever) last week, at the moment there is little external pressure on Spain’s Prime Minister Rajoy to ask for a bailout.
As Catalonian elections are not scheduled to take place until 25 November, unless external events force Spain’s hand, the markets may have a while to wait before a bailout triggering potential ECB bond buying takes place.
One potential positive for gold is that the gold price in Indian rupee terms is now at its lowest level since June. With the Diwali festival fast approaching, Indian jewellery and investment demand may start to pick up.