Global Concerns Affecting Gold Price

Last week, gold managed to climb above $ 1,750 per ounce mark on the back of coordinated movement of central banks to boost liquidity. When the Federal Reserve has allowed central banks to exchange their currency into U.S. dollars, the dollar fell and gold benefited.

Despite the rise in gold prices, Chinese demand continues to be equally high. Despite the fact that the Chinese government keeps very quiet about gold reserves, believed that China has over 33,890,000 ounces of gold as reserves and that is growing rapidly. In 2007, China overtook South Africa as the largest producer of gold in the world and China has made the most of this cost advantage.

The Chinese, however, is also in need of monetary support after The People's Bank of China made it easier for banks to lend more money, cutting the amount of reserves banks must hold. During the past week, China's central bank had to intervene in currency markets, but for once, is not acting to keep the Renminbi against the weak dollar. The blame belongs to the housing bubble in China which seems ready to burst. The good news is that Chinese efforts to support the market seems to function; But the bad news is that investors are starting to realize that Reminbi can fall and rise.

Also underpinning the gold price was the continuation of the market by central banks. South Korea is the latest bank to buy gold in an effort to diversify its foreign reserves and protection against financial instability. A number of banks have disclosed information about the continuation of the market in gold; These include Thailand, Russia and Bolivia. Despite the fact that gold seems to have lost its position today as an asset a safe haven, the increased demand from central banks say gold prices.

EU leaders will meet in Brussels this morning (12.08.11) to try and agree on a deal to tackle the debt crisis Euro Zone. Most investors and analysts have described this "do or die" moment for Europe. It is now evident that any solution must be reliable and durable; The markets will no longer be fed drips and drabs of false hopes. One way or another, EU leaders should announce a viable plan.

Chancellor Merkel and President Sarkozy is seeking renewal of agreements between countries that impose fiscal discipline on automatic penalties for those who overspend. However, other sanctions previously included in the contracts and those who clearly were not met, so how much difference will it really?

After the Standard and Poor put all eurozone countries on credit watch seems that the main focus is to restore market confidence and therefore EU leaders appear to be hardening their positions. However, if the EU is to survive long term must be improving solidarity and collective fiscal union.

The ECB (European Central Bank) has cut its key interest rate at 1% ahead of the summit of the European Union. Unfortunately, this is a big part of the ECB itself and has no power to do what is necessary to stop the deterioration of the debt crisis. Italy and its debts are too big to be rescued by other governments that instead the focus continues to circle back to whether or not the ECB will have to come back and print money. Of course, gold will benefit from this, as people seek to invest in gold again in search of safe haven assets and protection against inflation.