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European markets have pushed higher this today, shrugging off concerns about the lack of a deal on the Greece debt swap negotiations choosing instead to focus on the fact that there was a consensus of sorts with respect to the fiscal compact. Many tribulations are likely to lie ahead but for now while negotiations continue in Athens with respect to the troika and a new Greek bailout it seems that, as per usual, Europe will run things to the wire. In any case the FTSE looks set to post its best month since October and that isn’t something to grumble about.

Some positive company updates have also helped sentiment with ARM Holdings (ARM LN) cheering investors with a trading update that beat expectations with pre-tax profits jumping 37% from £167.4m to £229.7m. Given Apple’s blowout numbers last week it would have been surprising if they hadn’t done well. Satellite broadcaster BSkyB (BSY LN) also beat market expectations by announcing a half yearly operating profits increase of 16%. On the downside banks have continued to drag with Lloyds (LLOY LN), RBS (RBS LN) and Barclays (BARC LN) all slipping back.

U.S. Markets opened higher taking their lead from the more upbeat sentiment in Europe, though economic data has seen the market slip back. The rise was assisted by decent quarterly earnings from stock heavyweights Pfizer, Eli Lilly and UPS all succeeding in topping estimates. The economic docket releases thwarted any real upside in early trade; with the Chicago PMI hitting its lowest level since August last year, coming in at 60.2 against an expectation of 63.0. Consumer confidence also disappointed; retreating to 61.1 and a significant undershoot of the 68.0 consensus expectation.

It’s been a bit of a mixed bag for currencies today with the Euro finding it difficult to build on its recent gains, slipping back against the U.S. dollar and the pound after German retail sales slid sharply by 1.4% in December. Even though German unemployment fell again to a post-unification low of 6.7% this was an isolated case as unemployment rose everywhere else in Europe. Italy’s unemployment rate rose to 8.9% while Euro zone unemployment rose to an all-time high of 10.4%. The Pound has had a more positive day after consumer confidence rebounded slightly to its highest levels for a few months; however the consumer credit numbers suggest that consumer’s remain in retrenchment mode, sliding by £0.4bn in December. The Swiss franc continues to push gradually towards its ceiling against the euro at 1.2000 and there could be a tendency for traders to position themselves in anticipation of some intervention, which could actually see any bounce be short-lived in the event of intervention, or in the absence of it could see it slip below 1.2000 in the coming days. Intervention only works well when the market is positioned the wrong way round, just ask the Japanese, and for now the market is not overly long Swiss francs.

Crude oil prices have remained fairly buoyant as equity markets close the month in fairly positive fashion, held up by concerns in the Middle East and a slightly more positive tone in Europe.

Gold prices remain underpinned by speculation about easier central bank monetary policy, however silver prices have lagged behind somewhat.

Copper prices have retained their weaker tone from yesterday ahead of Chinese manufacturing PMI data due out on Wednesday which is expected to show a contraction to 49.6.

U.S. Dollar gold bullion prices looked set to record their largest calendar month gain this century by Tuesday lunchtime in London.

Gold prices hit $1745 per ounce – just less than 14% up on the Dollar gold bullion price set at the last London Fix of 2011.

By this measure, January 2012 looked set to record the fourth-largest calendar month gain in the last three decades, and the biggest since September 1999, the month that saw the signing of the Central Bank Gold Agreement, which limited the sales of gold bullion by signatory central banks.

Stocks and commodities also gained Tuesday, while government bond prices dipped.

"In overnight trade in Asia, we continued to see lackluster physical interest," says Marc Ground, commodities strategist at Standard Bank.

"[There was] even some scrap gold and silver coming to market from Japanese recyclers...nevertheless, prices held steady."

Physical volumes on the Shanghai Gold Exchange Tuesday were down 28% on the previous day.

The first day's trading after Lunar New Year saw "strong physical demand" on Monday, according to one gold bullion dealer in Hong Kong.

Silver bullion prices meantime hovered around $33.80 per ounce – 21.2% up on the start of January.

Industrial manufacturers meantime are set to use over 15,000 tonnes of silver in 2012 – 2.5% more than last year – according to estimates by Barclays Capital. Morgan Stanley meantime reckons investors may invest in 2000 tonnes of silver bullion via exchange traded vehicles – following net selling by such investors of 1300 tonnes last year.

"Silver got hammered [following last April's peak]," says Dan Smith, head of metals research at Standard Chartered.

"Now we're into a phase where it will do quite well...Appeal comes from its widespread use in both industry and investment. I think it's relatively cheap."

"The short-term investment argument is not entirely convincing," counters David Jollie, strategic analyst at Mitsui Precious Metals in London, citing "weak industrial demand" in places like China.

Chinese silver imports in December were 36% down on their average for the last two years, customs data cited by newswire Bloomberg show.

Here in the UK, seasonally adjusted M4, the broadest money supply measure, fell 1.4% in December – its largest one month drop since the Bank of England began recording the data in 1982. The year-on-year fall was 2.5%.

Net consumer credit in November meantime fell by £377 million – the first net drop since last January and the biggest monthly fall since the data series began in 1993.

"There is clearly a risk that credit constraints may hinder the reallocation of resources required to rebalance the economy," Bank of England governor Mervyn King said in a speech last week, adding that "there is scope for interest rates to remain low, and, if necessary, for further asset purchases [to facilitate quantitative easing]."

Eurozone unemployment meantime hit a record high last month at 16.5 million people – with the unemployment rate at 10.4% – according to official figures published Tuesday by Eurostat.

"In many cases you find firms continuing to delay investment projects," notes Citigroup economist Guillaume Menuet.

"For those that are still making profits, hiring is being frozen, and for those which are under pressure to hit results or losing money, job losses are becoming the only solution that they have."

Elsewhere in Europe, banks are preparing to borrow at least €1 trillion when the European Central Bank holds its 3-Year longer term refinancing operation next month – more than twice the amount borrowed at December's 3-Year LTRO.

Greece meantime is hoping to conclude a deal with its private sector creditors by the end of the week, Greek prime minister Lucas Papademos said Tuesday. There remained however no agreement among European leaders over what to do about the deterioration is Greece's fiscal position.

"Greece's debt sustainability is especially bad," German chancellor Angela Merkel said Monday.

"You have to find a way through more action by the Greek government, more contributions by private creditors, for example, in order to close this gap."

At yesterday's summit leaders agreed to accelerate the implementation of the €500 billion European Stability Mechanism, the Eurozone's permanent bailout fund.

There was also endorsement of proposed new deficit rules – although a German suggestion that the EU appoint a budget commissioner to oversee Greece's finance appears not to be receiving wider support.

"Surveillance of Greece's progress is normal," French president Nicolas Sarkozy said, "but there was never any question of putting Greece under guardianship."

Over in the US, the Commodity Futures Trading Commission, which regulates gold futures and options trading on the New York Comex, has said it is considering new rules aimed at firms using automated and high-frequency trading systems as part of its efforts to implement the Dodd-Frank legislation on financial services.

Venezuela has completed the repatriation of 160 tonnes of gold bullion – around three quarters of its total reserves  that were held in US, European and Canadian banks – newswire Dow Jones reports.

"Venezuela's gold is now in the hands of Venezuelans, secured by Venezuelans and at the service of all Venezuelans," said Venezuela's central bank head Nelson Merentes.

Gold bullion makes up 71% of Venezuela's total foreign reserves, according to figures from the World Gold Council

Ben Traynor
BullionVault

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it

Last night saw broad agreement amongst EU nations of the fiscal treaty so favoured by Germany; however the agreement was not universal, with the UK and the Czech Republic refusing to sign up. The treaty is expected to legally bind EU countries to balance their budgets over time; however it is not clear whether some local parliaments might require a referendum on the issue, with Ireland a likely candidate. It is also not clear how legally enforceable the pact will be and how much latitude states will have with respect to “exceptional circumstances” in deviating from the agreement.
 
In any event this is a mere side issue with the continued lack of agreement with respect to a Greek debt deal. With a new Greek aid package contingent on the current negotiations surrounding the debt restructuring, any agreement was always likely to be tortuous, especially given the fact that Greece’s finances are in an even worse state than originally thought, with a funding gap that needs filling.
 
It therefore looks like the markets will have to wait a little while longer for any news on the PSI, given that the troika are still in Athens, and as with all things Europe it is better to treat anything EU politicians say with a large dollop of scepticism, with respect to timeframes.
 
Unfortunately for EU leaders, for all the talk of Greece being a special case it appears that Portugal could well be going the same way, as its bond yield continue to explode higher, with 10 year yields above 17%, and it seems likely that a debt restructuring could well be on the cards here as well, given that the economy is contracting sharply.
 
In addition to all of that and for all the fine talk of budget responsibility and fiscal compacts, one of the biggest problems in Europe remains unemployment, with youth unemployment exploding in Spain, above 50%, in Greece, 46.6% and Portugal, over 30%. Today’s Eurozone unemployment figures are therefore not expected to make pretty reading though the worst of it is expected to be disguised by Germany’s record low unemployment rate. German unemployment for January is expected to drop by 5k, while the unemployment rate is expected to stay at a historically low 6.8%. Italian unemployment for December, on the other hand is expected to increase from 8.6% to 8.7% while European unemployment is expected to rise to 10.4%.
 
Over the other side of the Atlantic an air of cautious optimism remains despite last week’s disappointing Q4 GDP number, and the Fed’s downbeat assessment of the U.S. economy. U.S. consumer confidence for January is expected to improve from 64.5 in December to 68, while the Chicago Purchasing Manager index is expected to rise from 62.2 in December to 63.0.
 
EURUSD – yesterday’s failure to breach the 1.3245/50 38.2% retracement of the down move from the October highs at 1.4250 to the recent lows at 1.2610., keeps the focus on the downside.  A break though could well target a deeper move towards 1.3450; however a potential bearish reversal on the candle charts keeps the focus for a move lower. To reopen a downside move we still need to see a break below 1.3060 to retarget last Wednesday’s lows at 1.2940/50 level which prompted the sharp rebound at the end of last week. The key support level remains around the 1.2850/60 area and only below this level reopens a move towards the key 1.2600 level which represents the 76.4% retracement of the up move from the 2010 lows at 1.1880 to last years highs at 1.4940. This support level also coincides with the August 2010 lows at 1.2590.
 
GBPUSD – yesterday saw the pound post its first negative day in the past 11 and in the process post a possible potential reversal, after failing at 1.5740. While below the December highs at 1.5770/80, the bias remains towards the downside and the longer term downtrend intact. Only a move above 1.5780 targets a move towards 1.5920 and slightly above that the 200 day MA 1.5968. The 1.5550 area looks like to continue to act as support on any move back lower, which if broken, could see a move back to 1.5360.
 
EURGBP – the single currency continues to run into a wall around the 0.8420 cap. While 0.8420 caps the focus remains for further euro losses back towards the September 2010 lows at 0.8200/05, which remain the key obstacle to further declines towards the 2010 lows at 0.8065. There is also trend line support at 0.8320 from the 0.8220 lows. A break of 0.8420 could well trigger a sharp move towards 0.8500.
 
USDJPY – yesterday’s move below the 76.50 level opens up the risk of a move back towards the all time lows at 75.30. This move could now open the risk of possible further intervention by the Bank of Japan as the yen continues to rise. The 200 day MA at 78.30 remains the key barrier to a U.S. dollar turnaround after last week’s failure at that level.

If today’s moves in European markets signal anything, they signal a lack of confidence in European leaders to deliver on what investors had hoped last week would be some form of progress with respect to a Greek debt deal, over the weekend. Having seen markets hold on to the gains from the previous two weeks on the back of EU officials promises that a deal was close; the lack of any progress over the weekend has seen the markets deliver its verdict and it’s rather damning, with the FTSE hitting its lowest levels in nearly two weeks.

Friction between Germany and Greece over increased budget oversight hasn’t helped sentiment either. Financials have borne the brunt of today’s moves lower with French banks being hit particularly hard on the news that France will be implementing a unilateral transaction tax by Q3 of this year, as politicians again choose to tinker around the edges rather than deal with the actual issues.

UK banks are also lower with Lloyds (LLOY LN), Barclays (BARC LN) and Royal Bank of Scotland (RBS LN) at the bottom of the FTSE. Basic resource stocks have also slid back sharply as investors take profits on the gains seen so far on what has been a fairly positive month for European markets. The more defensive sectors have been the better performers with pharmaceutical stocks and utility stocks outperforming the rest of the index, with National Grid (NGG LN), International Power (IPR LN) and Glaxo (GSK LN) the better performers.

U.S. markets took their cues from European markets opening sharply lower, though the bias had already been slightly lower after Friday’s disappointed market reaction to the latest U.S. GDP numbers. Economic data for December for personal spending and income showed that while wages were rising slightly above expectations, personal spending was flat, suggesting that despite the recent improvement in economic data, the US consumer was remaining cautious. Biggest fallers were, not unexpectedly JP Morgan and Bank of America, as markets digested a downgrade of BoA from “buy” to “neutral” from sector peer Goldman Sachs. On the plus side Citigroup and Morgan Stanley were on the receiving end of upgrades to “buy”.

The U.S. dollar has bounced back from last week’s late losses with only the Japanese yen performing better than the greenback. The Euro has slid back sharply despite Italy managing to get away €7.5bn worth of 5 and 10 year bonds, albeit at lower yields, in the wake of last Friday’s long awaited Fitch downgrade. The lack of any news on a Greek PSI deal has also seen an unwinding of some of the recent gains in the euro, as markets grow sceptical that EU leaders are capable of anything other than spin.

Tensions between Greece and Germany over increased budget oversight with respect to a second bailout haven’t helped either. Fears over Portugal and the sustainability of its finances have also increased after the yield curve inverted with the 10 year yield above 17% to a post euro high. The Japanese yen has also risen sharply to its highest levels since October, as U.S. 10 year treasury yields have slid sharply, close to one month lows. Traders are also watching the Swiss National Bank as the Swiss franc edges closer to the 1.2000 peg, trading below 1.2050 for the first time in over three months.

Commodity prices have slid back across the board as the U.S. dollar has rebounded with Gold and Silver prices.

Crude oil prices have tracked equities lower but not by as much as you would think given the on-going worries about the situation in the Middle East. Iran’s threat to pre-empt Europe’s blockade has lent some support to prices even though prices are lower.

Copper prices have gapped lower today dragged lower by concerns that Chinese demand may have peaked in the short term. There is also concern that today’s EU leaders summit could well end as so many before it, to quote Shakespeare “full of sound and fury, but signifying nothing”.

The spot market price for gold climbed to $1728 an ounce Monday morning London time – a slight drop from last week's close – while stock markets, commodities and the Euro all fell and government bond prices rose as European leaders met for their latest summit in Brussels.

The cost of buying silver fell to $33.08 at one point – a 2.6% drop from where it ended last week.

Gold fell as low as $1718 per ounce Monday morning, dropping steadily during Asian trading, though this represented a loss of only 1% on Friday's closing price.

"Everybody seemed to be expecting profit taking out of Shanghai after the two Chinese bourses came back online," said one Hong Kong dealer.

"As far as we can see, there wasn't much of that."

During last week's Lunar New Year holiday, China saw a "gold rush", with consumers spending more on buying gold than during the 2011 festival, according to a China Daily report.

"People seem crazy about gold, snatching it up more like a cheap cabbage than such a precious metal," it quotes Beijing resident Miao Miao.

The value of sales at two of Beijing's top gold retailers, Caibai and Guohua, reportedly hit 600 million Yuan ($95.28 million) – a 49.7% rise on last year's sales. The gold price in Dollars meantime rose around 25% over the same period.

The Yuan also appreciated against the Dollar over that time, gaining around 3.6%, which implies a rise in Chinese domestic gold prices of around 20%.

Despite strike action in Belgium that has brought transport to a halt, European leaders met in Brussels on Monday, where the issues of budget discipline and the Greek debt crisis were expected to dominate discussions.

"Solidarity and reliability are really coming together in this context," German finance minister Wolfgang Schaeuble said last week.

"We are credibly addressing the problems in the affected countries...and in the meantime we have to demonstrate solidarity."

Britain however has already walked away from the new budget treaty currently being drafted.

"To write into law a Germanic view of how one should run an economy and that essentially makes Keynesianism illegal is not something we would do," one British official told newswire Reuters.

Denmark, which does not use the Euro, has negotiated a concession that fines imposed on a country that breaches new deficit rules would only go into the Eurozone bailout fund if the fined country were a Eurozone member – otherwise they will go to the European Union's general budget.

Greece meantime has rejected a German proposal that an EU budget commissioner should have power over Greek taxes and spending.
 
"I think it's wrong that money from the EU's structural development fund is being spent on bicycle stands," German foreign minister Guido Westerwelle said on Friday, arguing that EU funds are being squandered.

The proposed budget commissioner would have the power to veto any decisions that were not consistent with targets set by Greece's international creditors.

"I would rather resign as a minister than allow anybody to tell us the way we should be spending our money," Greece's culture minister Pavlos Yeroulanos told the BBC.

Greek finance minister Evangelos Venizelos said the proposal "ignores some key historical lessons".

'Nein! Nein! Nein!' said the front page of Greek tabloid Ta Nea on Monday, which showed a picture of German chancellor Angela Merkel as a puppeteer, with the map of Greece depicted as a marionette.

Ahead of Monday's EU summit, there was still no news of a voluntary agreement between the Greek government and private holders of its debt over how that debt should be restructured and how large should be the losses private sector bondholders take.

Greece needs to its second bailout, worth €130 billion, to be approved if it is to meet €14.5 billion of maturing bond payments on March 20.

Eurozone economic confidence meantime rose for the first time since March last year, according to the European Commission's economic sentiment indicator.

"The outlook for economic growth in Europe in 2012 is not a healthy one," warns Ian Scott, London-based chief global strategist at Nomura.

"Nevertheless, even a recession in the Euro area, and very slow growth elsewhere, is unlikely to be sufficient to undermine the market if governments and central banks are able to stabilize sovereign spreads and lessen the immediate tail risk of a messy sovereign default."

Over in New York, the difference between bullish and bearish futures and options contracts held by Comex traders for selling and buying gold – the so-called speculative net long – rose for the third week in a row in the week ended last Tuesday, according to the latest data from the Commodity Futures Trading Commission.

"The change in the net position was largely the result of speculative longs being added," notes Standard Bank commodities strategist Marc Ground.

"Net spec length is still far off Q3 2011 levels," adds a note from precious metals consultancy VM Group.

"[This suggests] further moves higher are likely should sentiment remain bullish."

Today’s EU summit is likely to be a rather testy affair after reports on Friday that Berlin wanted more stringent EU oversight of Greece’s finances in return for a new bailout, as concerns grow over the country’s ability to deliver on its financial obligations. Items on the agenda to be discussed include the fiscal compact as well as the European Stability Mechanism (ESM) and the (FTT) Financial Transaction tax.
 
In any case all of these items remain secondary to the main problem exercising investor’s attention at the moment, which is the problem of a new bailout for Greece, as well as the agreement on the (PSI) private sector involvement.
 
New bailout talks look set to continue with speculation that any agreement will insist on new austerity measures to bridge a new funding gap, while Friday’s German additional EU oversight demands have not gone down well in Athens, prompting widespread anger.
 
Greek Finance Minister Venizelos rejected any notion of reduced Greek fiscal oversight outright, and there is deep unease that the suggestion was made at all, but they underline German, as well as IMF concern about the Greek government’s ability to implement the measures being asked of them now, and in the future.
 
Talks with Greece’s private creditors are said to be progressing and agreement apparently reached with respect to a debt restructuring to the tune of a 70% haircut, but this has been the line for the past two weeks and there still appears to be no official confirmation of the fact. It would also appear that due to further fiscal deterioration in Greece’s finances a funding gap has opened up since the second bailout was agreed in October which needs agreement on further measures to close it. The argument revolves around who fills this gap. Will it be Greece, with further austerity measures, or asset sales, or the ECB in giving up its profits from Greek bond purchases? Until this issue is resolved and Athens acquiesces to further troika demands in return for a second bailout, any prospective PSI agreement announcement could well be delayed.
 
The action by ratings agency Fitch in finally delivering on its long awaited threat to downgrade Italy, Spain and three other European countries with a negative outlook, barely caused a ripple in currency markets on Friday, probably because the downgrades had been so well telegraphed before hand. In any event unlike Standard and Poor’s, the agency reaffirmed France’s triple “A” rating as well as all the other triple “A” country ratings in Europe.
 
Given that Italy’s bond yields have dropped sharply in the past few days in the wake of some successful short term auctions, today’s 5 and 10 year auctions will be a key test of investor demand for the country’s longer term paper, especially in view of Friday's downgrade by Fitch. The auctions are for up to €4bn of 2017 and €2bn of 2022 paper.
 
EURUSD – the single currency has continued its recent rally holding above the 1.3060 support as it closes in on the 1.3250 38.2% retracement of the down move from the October highs at 1.4250 to the recent lows at 1.2610. A break here could well target a deeper move towards 1.3450. To reopen a downside move we would need to see a break below 1.3060 to retarget last Wednesday’s lows at 1.2940/50 level which prompted the sharp rebound at the end of last week. The key support level remains around the 1.2850/60 area and only below this level reopens a move towards the key 1.2600 level which represents the 76.4% retracement of the up move from the 2010 lows at 1.1880 to last years highs at 1.4940. This support level also coincides with the August 2010 lows at 1.2590.
 
GBPUSD – ten successive up days has seen the pound push close to but not as yet exceed the December highs at 1.5770, just about keeping the bias to the downside and the longer term downtrend intact. Only a move above 1.5780 targets a move towards 1.5920 and slightly above that the 200 day MA 1.5968. The 1.5550 area looks like to continue to act as support on any move back lower, which if broken, could see a move back to 1.5360.
 
EURGBP – the single currency is homing in on the resistance around the 0.8420 cap. While 0.8420 caps the focus remains for further euro losses back towards the September 2010 lows at 0.8200/05, which remain the key obstacle to further declines towards the 2010 lows at 0.8065. A break of 0.8420 could well trigger a sharp move towards 0.8500.
 
USDJPY – last weeks failure to get above the 200 day MA at 78.30 has seen the US dollar drop sharply once again raising concerns about the strong yen, and possible central bank intervention from the Bank of Japan. It needs a move beyond these two resistance levels to target a move towards the October 2011 highs at 79.55. The lows this month and in November at 76.50 remain the key support. Only a move and close below 76.50 opens up the all-time lows at 75.30.

European markets have slipped back heading into the weekend with the same concerns hanging over them as last week, namely a resolution to the Greece debt restructuring talks. There is also rising concern about the state of Portugal’s finances as its bond yields blow out towards 15% and the yield curve inverts, on fears that it could well go the same way as Greece, and need some form of debt restructuring. A slightly weaker than expected U.S. GDP number also weighed on markets heading into the close.

The main fallers today have been the basic resources and oil and gas sector with BP (BP. LN) slipping back after a U.S. court ruled that it couldn’t shift some of its liabilities for the Gulf of Mexico oil disaster onto rig contractor Transocean. Intercontinental Hotel Groups (IHG LN) is also near the bottom of the FTSE after being in the end of a downgrade from UBS to “neutral”. Defensive stocks have fared better today with Imperial Tobacco (IMT LN) near the top of the index after some positive broker comment.

U.S. markets opened lower this morning after U.S. Q4 GDP came in below consensus analyst expectations, dragged down by reduced government spending on items like defence, as well as reduced local government. Consumer spending was up no doubt helped by all those iPod and iPad sales, while car sales also increased. The concern is that this figure could well get revised lower as is often the case, and also underlines why Bernanke appeared so cautious with his outlook at this week’s FOMC meeting. In earnings news Honeywell beat expectations for Q4, though revenues missed expectations, while the company warned on growth in European markets. Car maker Ford also announced their latest profits coming in at $0.20c a share excluding special items, up from last year, but they were below analyst expectations of $0.25c a share. Oil company Chevron also slid back after its Q4 earnings missed estimates, coming in at $2.58c a share, below expectations of $2.85c a share. In an important test of consumer sentiment University of Michigan confidence for January came in slightly higher at 75, just up from the previous reading of 74.

The U.S. dollar has slid back once again today despite the slightly weaker tone in equity markets. The Japanese Yen has jumped sharply moving close to the key 3 month support level at 76.50, prompting renewed concern of Bank of Japan action to once again stem the yen’s rise. The Euro looks set to post a second positive week in a row for the first time since October; however upside is being constrained somewhat by concern about the outcome of the Greece PSI talks and Monday’s EU summit. The Swiss franc continues to test the patience of the Swiss National Bank as it pushes closer to the peg at the 1.2000 level.

Copper prices hit their highest levels since September at $3.9325 before pulling back, failing at the 61.8% resistance level of the down move from the $4.5125 highs in July last year to the October lows at $2.9940, after U.S. GDP numbers missed expectations.

Crude oil prices have slipped back from their highs after U.S. GDP numbers came in slightly lower than expected. They still look set to finish the week higher to post their first weekly gains since the beginning of January, underpinned by Iranian threats to stop exports to the EU.

Gold prices have continued to remain fairly well underpinned on the back of the softer U.S. dollar tone.

Wholesale market gold prices were headed for their biggest one-week rise since the start of December Friday lunchtime in London, climbing back through $1720 an ounce – a weekly gain of over 3%.

Silver prices meantime hovered around $33.60 per ounce – 4.2% up on last week's close – while other stocks and commodities were broadly flat and US Treasury bond prices slipped.

A day earlier, gold prices hit a 7-week high at $1730 per ounce before easing in Friday's Asian session.

"Lack of physical demand partly explains the inability of gold to make a sustained move beyond the $1730 level," says Standard bank commodities strategist Marc Ground, citing this week's Chinese Lunar New Year holiday as impacting demand from China, Singapore, Malaysia and Indonesia.

"[But] while slowing physical demand might provide some resistance during price rallies, we do not feel that it would be the cause of prices moving significantly lower."

"The [physical] market has been like a yo-yo," one Singapore dealer tells newswire Reuters.

"I think it's a good time to buy gold...but clients are all cautious. They are doing enough to roll their money but keeping it all for the possibility of buying back."

"Maybe it's better to wait until Monday," reckons another Singapore dealer.

"The Chinese market reopens and [we will] see whether they will buy some more gold or they will take profits."

Based on PM London Fix prices, gold by Friday lunchtime looked set for its biggest weekly gain since the week ended December 2 last year.

That week saw gold's biggest single-day Fix-to-Fix gain of recent months, when gold prices rose 2.5% on 30 November last year. Between that day's AM and PM Fix, six of the world's central banks announced a co-ordinated move lower the cost of Dollar funding for to the banking system.

This week meantime saw the Federal Reserve's Federal Open Market Committee begin publishing members' interest rate projections on Wednesday. The majority of FOMC members expect rates to remain at or below 1% until at least the end of 2014.

"The market attitude towards gold for most of January could be summed up in two words: cautious optimism," says the latest precious metals note from UBS.

"Investors were reluctant to add to positions aggressively as memories of the disappointment in Q4 lingered...A fresh catalyst was needed and we think the FOMC outcome on Wednesday fit the bill.

More accommodative policy is a very good foundation for gold to build on the next move higher."

Between Wednesday's London PM Fix and Thursday's AM Fix – during which time the Fed made its announcement – gold prices gained 3.8%. Notwithstanding the New Year break, this was the biggest Fix-to-Fix gain since September 27.

That rise in gold prices coincided with reports that European policymakers were preparing a move to recapitalize the continent's banks – though the reported proposals were not adopted.

European leaders meantime are "just about to close a deal on private sector involvement between the Greek government and the private-sector community," European commissioner for economic and monetary affairs Olli Rehn said Friday, speaking at the World Economic Forum in Davos, Switzerland.

A Greek deal would pave the way for Greece's second bailout, agreed last October and worth €130 billion – without which Greece will not be able to repay €14.5 billion of maturing debt on March 20.

Iran – which was earlier this week hit by fresh sanctions on oil, diamond and gold dealing – has said that it may immediately halt its oil exports to Europe to pre-empt a European Union ban due to come into force July 1. Greece is thought to import around one third of its oil from Iran.

Two weeks after ratings agency Standard & Poor's downgraded them to junk status, yields on 10-Yeat Portuguese government bonds hit their highest levels since the crisis began Friday morning when they traded at 15.4% – almost double the yield on equivalent Irish debt.

Portugal's 5-Year bond yields breached 20%.

"It makes it impossible for Portugal to access debt markets in 2013," says JPMorgan rate strategist Nikolaos Panigirtzoglou.

"It's a country that still relies on the official sector in terms of financing its current account deficit and repayments and this makes it certain that we're going to get a second bailout for Portugal later this year."

"The market is asking whether Portugal is really just like Greece," adds Richard Batty, strategy director at Standard Life Investments.

A survey published this morning by British free newspaper Metro finds that 68% of British people believe the Euro will collapse.

French bank Societe Generale's latest Hedge Fund Watch also finds that hedge funds are shorting the single currency "like never before", the Financial Times Alphaville blog reports.

The Euro however rallied against the Dollar Friday morning, breaking back through $1.31.

Euro gold prices were flat Friday morning, holding above €42150 per kilo (€1310 per ounce) – still a 1.7% gain for the week

Ben Traynor
BullionVault

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it

The Euro rebounded yesterday on unconfirmed talk that private sector banks had tabled an improved offer on the Greek PSI. Talks are set to continue today with speculation that they had given ground on the coupon to 3.75%, but there has been no confirmation of this so far. The offer is also above the 3.5% demanded by the Greek government and the EU, which is needed to get the debt to GDP ratio down to a more sustainable level by 2020.

Speculation has continued about the ECB’s holdings with some discussion about how to deal with any forced losses on the €40bn worth of bonds held. The prevailing view is that this would be fiercely resisted, but it is hard to see how it could be avoided given the ECB is not a preferred creditor. With all the focus on Greece, attention has also started to shift to Portugal whose own bond yields are continuing to rise sharply with 10 year yields pushing on towards 15%, as fears rise that it to could well need a second bailout.

Italy on the other hand has seen some relief in its borrowing costs as 10 year bond yields slid down towards 6% yesterday. Shorter term borrowing costs have also fallen back sharply as Italy managed get €4.5bn of 2014 bonds away at significantly reduced yields, while today’s auction of €8bn of 6 month bills and €3bn of 11 month bills, should see similar falls in yields.
 
The only other data of note today is the publication of U.S. Q4 GDP which is of particular importance in light of the Fed’s surprising decision to extend its low rate outlook on Wednesday. Wednesday’s decision was all the more surprising given that the expectation for today’s GDP numbers is for a strong recovery from Q3’s 1.8% to a rise of 3%. Given that the Federal Reserve also downgraded their growth forecasts for 2012 to between 2.2% and 2.7%, it does raise the concern that markets expectations could be on the high side. On the flip side yesterday’s better than expected durable goods orders for December and the upward revision to the November figure have encouraged expectations of a good number, around that 3% mark. A disappointing number would certainly increase the possibility of a further round of asset purchases sooner, rather than later. Even if the number does come in as expected U.S. GDP does have a habit of getting revised lower. Q3’s numbers were a case in point, as they also initially came in high at 2.5% before being subsequently revised downwards to 1.8%, largely as a result of weak retail spending and the worry is that Q4 could go the same way.
 
EURUSD – yesterday’s move to 1.3180 stopped well short of the 1.3250 38.2% retracement of the down move from the 1.4250/1.2610 down move. There is still potential to hit this level but only if we stay above the 1.3060 level. A break below 1.3060 has the potential to open up a move back towards the 1.2940/50 level which prompted the sharp rebound on Wednesday. The key support level remains around the 1.2850/60 area and only below this level reopens a move towards the key 1.2600 level which represents the 76.4% retracement of the up move from the 2010 lows at 1.1880 to last years highs at 1.4940. This support level also coincides with the August 2010 lows at 1.2590.
 
GBPUSD – the pound completed nine successive up days in a row yesterday which suggests it could well be time for a down day. The failure to take out the December highs at 1.5770, running out of steam at 1.5730, keeps the bias to the downside and the longer term downtrend intact. Only a move above 1.5780 targets a move towards 1.5920. The 1.5500 area should continue to act as support on any move back lower, which if broken, could see a move back to 1.5360.
 
EURGBP – the single currency continues to find sellers just below the 0.8400 level while there is larger resistance just above that at 0.8420. While 0.8420 caps the focus remains for further euro losses back towards the September 2010 lows at 0.8200/05, which remain the key obstacle to further declines towards the 2010 lows at 0.8065. A break of 0.8420 could well trigger a sharp move towards 0.8500.
 
USDJPY – after threatening to rally above 78.30 resistance and the 200 day MA earlier this week the US dollar has fallen back, once again raising concerns about the strong yen, and possible central bank intervention from the BoJ. It needs a move beyond these two resistance levels to target a move towards the October 2011 highs at 79.55. The lows this month and in November at 76.50 remain the key support Only a move and close below 76.50 opens up the all-time lows at 75.30.

European markets have enjoyed good gains today, hitting their highest levels since early August last year, after yesterday’s surprise decision by the Fed to pre-commit to a lower rate policy until late 2014, well beyond market expectations. Talk that Greece’s creditors were ready to accept a lower coupon rate of less than 4% also leant a more positive bias to equity values.

The biggest gainers have been mining and basic resource stocks with Kazakhmys (KAZ LN) leading the sector higher after reporting that it had met all its major copper production targets for 2011 and expects to do so in 2012. Gold and silver miners Randgold Resources (RRS LN) and Fresnillo (FRES LN) have also kicked in as precious metals prices jumped sharply on expectations of further easing by the Federal Reserve later this year. Financials are also higher with Lloyds (LLOY LN), Royal Bank of Scotland (RBS LN) and Barclays (BARC LN) also higher on expectations that central banks will continue to ease monetary conditions in the coming year. More defensive shares have lagged behind today’s gains with Vodafone (VOD LN) and Imperial Tobacco (IMT LN) slipping back.

U.S. markets opened higher after yesterday’s surprise decision by the Fed to pre-commit to an easy monetary policy out to the end of 2014. This has seen the Dow push close to last year’s high at 12,875, a break of which would see it hit its highest levels since the index made twin highs at 13,130 in May 2008. 

Some more positive earnings numbers have also helped buoy sentiment, with Caterpillar blowing away expectations for Q4, returning earnings of $2.32c a share well above the $1.73c forecast as demand for mining equipment rose. The company also raised its full year estimates for profits. Telecoms company AT&T also announced Q4 numbers which saw revenues rise on the back of record sales of iPhone and Android phones, however EPS came in below expectations of $0.43c a share at $0.42c.

Economic data also came in better than expected with December durable goods showing some improvement, on the back of better than expected aircraft sales, up 3% in December, above expectations of a 2% rise. Weekly jobless claims came in higher than expected at 377k, after last week’s surprise drop to 356k. New home sales for December on the other hand disappointed sliding back sharply, dropping 2.2%, more or less reversing November’s 2.3% gain.

The U.S. dollar has been hit across the board with the commodity currencies posting good gains led by the Australian and New Zealand dollar. The Euro has continued its recent rebound making new highs for 2012 on talk of an improved private sector offer on the Greek PSI, while yield differentials between U.S. and German 10 year bonds move back in Europe’s favour. Italy also managed to get €4.5bn of 2014 bonds away at reduced yields, while Italian 10 year yields fell to their lowest levels since early December. The Swiss franc is also higher as markets look set to test the Swiss National Bank’s resolve on the 1.2000 peg. The Pound continues to lag behind, and though higher against the U.S. dollar it is slipping back against the pound as UK economic data continues to disappoint. CBI reported sales data for January showed a sharp fall to -22, after December’s positive 9 reading. This suggests that a lot of consumers brought forward their January spend to take advantage of some heavy pre-Christmas discounting.

Gold prices have surged in the past 24 hours after last nights Fed meeting raised the prospect of more stimulus in the next few months, sending precious metals sharply higher. Silver prices have also risen sharply, outperforming gold.

Crude oil prices have also risen sharply on expectations that looser monetary policy will stimulate growth and thus boost demand. News that the EU will address any oil shortfalls as a result of the Iran export ban, by tapping reserves has also helped underpin prices.

Copper has managed to get above its 200-day MA for the first time since August last year, heading towards resistance at $3.9325, which is 61.8% retracement of the down move from $4.5125/$2.9940, as the U.S. dollar has slid back on optimism that an easier global monetary policy will help generate global growth.