2012-01-17

Gold Price held firm Monday after another key credit rating downgrade in Europe

The gold price advanced $4.82, or 0.3%, to $1,643.30 per ounce in light-volume trading on Monday amid modest weakness in the U.S. dollar. The price of gold moved higher alongside the euro currency, which rose 0.2% to 1.2664 against the dollar in afternoon trading.

The price of gold held firm Monday after another key credit rating downgrade in Europe. Standard & Poor’s – which last Friday lowered its rating on nine euro zone countries – cut its rating on the European Financial Stability Facility (EFSF) to AA from AAA due in part to the deteriorating economic fundamentals associated with the sovereign debt crisis.

Commenting on the downgrades, analysts at Societe Generale wrote in a note to clients that “The trigger for the downgrade was the failure of euro-area policy makers to deliver a sufficient solution to date.” Additionally, the firm contended that the markets had been expecting the downgrades, which therefore would not affect the firm’s euro zone GDP estimate of zero growth in 2012. Instead, Societe Generale pointed toward the upcoming European Union summit on January 30 as the next critical event for the ongoing crisis.

As for the upcoming week in the U.S., the economic calendar contains several key items likely to impact gold prices. The Empire Manufacturing Index comes out Tuesday morning, followed by the Producer Price Index (PPI) on Wednesday. The Consumer Price Index (CPI) – another key measure of inflation – will be released on Thursday, along with weekly jobless claims and the Philadelphia Fed Index. The week then concludes on Friday with the Existing Home Sales report for December. If the reports continue the recent trend of better than expected economic data, the gold price could come under pressure, which disappointing reports would likely provide a tailwind for the price of gold.

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