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Gold Drop Blamed on Speculation, European Politicians

Gold Drop Blamed on Speculation, European Politicians

October 19, 2012 - The spot price of gold dropped to $1,732 per troy ounce in early trading in London Friday morning close to one-month lows. Stock markets and the euro fell following the conclusion of the two-day European Union summit in Brussels that yielded few results.

The dollar price for gold heading into the weekend appears poised for its second successive weekly drop, a first for the gold market since trading in May.

Today’s Commodities Daily note from Commerzbank reports the banks holds selling by speculative financial investors responsible for the price slide.

It adds in recent weeks they had strongly built up positions and may now be seeing themselves forced to take profits given the faltering upswing.

The price of silver is also down in morning trading, touching a six-week low at $32.26 per troy ounce. Other commodities experienced gains in daily trading.

European leaders took a step toward the creation of a single Eurozone banking supervisor on Thursday but neglected to reach a consensus or compromise on several other issues facing the Euro bloc, including a delay by Spain to formally request a bailout from the European Union.

An unnamed EU official is quoted by the Financial Times as saying Thursday’s agreement papers cover significant differences. The direct recap, a prominent issue in current negotiations, is going to be much more difficult according to the source.

Reuters has been briefed by a French source saying they expect direct recapitalization could occur as early as the first quarter of next year, though a German government source told the same news source it is very unlikely to happen soon.

 The conclusions of the European summit, published on Friday, did not mention Spain or Greece despite the burgeoning debt problems in both nations.

A lack of clear direction out of the European Union has been lagging the precious metals market, contributing to the failure of the post-QE3 rally in gold. Spain in particular, which has delayed a formal request for a bailout from the EU, is giving mixed signals for the direction of the euro making gold unsure how to react. Meanwhile technical selling on the failed rally is the primary driver for gold downward.

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Jonathan Monroe

Senior Staff Writer - Gold-Bullion.org

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