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Gold Price Down 2% on Week as UK Exits New European "Fiscal Compact", Politicians "Expect ECB Bazooka"

The Gold Price fell back to this week's low of $1705 per ounce for the fourth time in two days Friday lunchtime in London, as Asian equities closed sharply lower but Eurozone equities rallied following news of the treaty changes being planned by political leaders in Brussels.

The 17 currency union members have agreed to submit their national budgets for European Commission approval, with "automatic sanctions" hitting any member whose annual budget deficit exceeds 3% of GDP.

A further €200 billion is being added to the Eurozone's Stability Fund rescue package for weaker states, with the start date brought forward to January 2012.

A further 6 or perhaps 9 non-Euro states will also join the new fiscal agreement, according to various press reports, but British prime minister David Cameron quit the talks last night after making what French president Nicholas Sarkozy called "unacceptable demands" to stymie treaty change and block a Europe-wide tax on financial transactions.

The Gold Price in Euros held flat around €41,200 per kilo – down some 1.7% for the week – as the single currency ticked lower vs. the Dollar.

US investors saw the Gold Price open New York trade 2.1% lower from last Friday's finish of $1745 per ounce.

The price of Silver Bullion crept higher towards $32 per ounce, some 1.9% down for the week.

"It's going to be the basis for a good fiscal compact and more discipline in economic policy in the Euro-area members," said European Central Bank president Mario Draghi this morning of the 10-hour negotiations in Brussels.

Draghi yesterday cut Eurozone interest rates but repeated that the ECB cannot provide direct financial aid to member states under the terms of its treaty.

Quoting anonymous central-bank sources, the Reuters news-wire says the ECB will continue cap its government bond-buying – now totaling €270 billion – at €20bn per week.

"You will see some further purchases, but not the huge bazooka that some people in the markets and the media are awaiting," it quotes one anonymous central banker.

But last week's move to provide unlimited funds to commercial banks "means that each state can turn to its banks, which will have liquidity at their disposal," said France's Sarkozy today, while Ireland's minister for Europe Lucinda Creighton says she "and many other member states" expect the ECB to become more "pro-active...in the weeks ahead," according to Reuters.

Greek, Italian and Portuguese government bonds all slipped in price Friday, pushing interest rates higher despite Germany's Angela Merkel ceding her call for private-sector bondholders to "share the cost" of aiding over-indebted Euro states by suffering a write-down on their value.

"To put it bluntly, our first approach to [private-sector involvement], which had a very negative effect on debt markets, is now officially over," said the European Union's president Herman Van Rompuy on Friday.

On the data front, German exports and French industrial output both showed a sharp drop for October, outpacing analyst forecasts.

The UK's trade deficit narrowed to £7.6 billion in Oct. from Sept.'s record, however, as imports of goods fell and exports rose both for goods and services.

Financial services and the income they pay staff account for some 11% of UK tax revenues, according to one Conservative MP praising David Cameron's exit from the Euro talks today.

The Moody's rating agency meantime cut the credit status of France's biggest banks, saying that "Liquidity and funding conditions have deteriorated significantly."

France's own national credit rating is at risk, the Standard & Poor's agency said this week, because of the weakness in its banking sector.
 
"Gold prices are still holding fairly well supported," reckons VTB Capital's Andrey Kryuchenkov in  note, "and any negative reaction to the summit today would only see limited losses in gold as opposed to other...more volatile precious metals, also suffering from growth concerns.

"On the downside [however] a break below $1700 would see losses to our key support at $1680 and the longer term January uptrend."

Germany's central bank the Bundesbank has witnessed a sharp rise in non-bank users of its deposit facilities, registering €11.3 billion in September according to Bloomberg.

"I don't trust Spain will remain in the Eurozone," the news-wire quotes Jenaro Garcia of the Grupo Gowex wi-fi provider in Madrid. "We moved our cash and deposits to Germany because Spain will come back to the Peseta."

Beijing is meantime planning to launch an aggressive investment fund to run $300 billion of its $3 trillion foreign exchange reserves, reports Reuters.

Part of the State Administration of Foreign Exchange (SAFE) – which acted to Buy Gold for China's national hoard according to its last reserves update of 1054 tonnes in 2009 – an un-named official says the fund will target US and European assets.

Now the world's second-largest private gold consumer, China saw consumer price inflation and industrial output both slip in October, under-shooting analyst forecasts at 4.2% and 12.4% respectively.

"Inflation is not a policy constraint [for the People's Bank of China] anymore," believes Tao Wang, an economist at UBS in Hong Kong.

After the PBoC last month cut the required reserve ratio of depositors' cash which commercial banks must keep back from lending after raising it over a 3-year period, any further decision "is not a function of CPI coming down, but more a function of the economy slowing and foreign exchange inflows drying up," says Wang.

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