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Gold ETF Holdings Hit All-Time High on Fiscal Cliff and Greece Debt Fears


Global gold holdings in exchange traded funds and products hit an all-time high last week.

Concerns the US may not be able to avoid going off the “fiscal cliff” at the end of the year and Greece may have trouble having its next bailout disbursement approved, caused investors to continue to build their gold ETP holdings as a hedge against worst case scenarios.

Official data last week confirmed that the Eurozone is back in recession for the first time in three years. Despite the two-year extension given to Greece to meet its fiscal targets, uncertainty remains over how the funding gap resulting from
this extension will actually be financed. [Gold ETFs and Inflation]

The Eurogroup meeting this week will be closely watched to gauge the likelihood that Greece has its next disbursement agreed upon by the Troika and necessary national parliaments by the end of the month.

Until Greece’s disbursement clears these approvals and there are clear signs the US Congress can find a fiscal compromise, markets are likely to remain on edge and demand for perceived safe havens such as gold are likely to remain high.

Fed hints at further quantitative easing

The FOMC minutes from the October meeting revealed that the US Federal Reserve is considering adding to QE3 in the new year and is open to experimenting with new tools.

The Fed chairman also cautioned in a speech that the nascent housing market recovery is fragile, with the implication that the market continues to need the Fed’s support buying mortgage-backed securities.

The Fed’s commitment to further easing should help support precious metals as a hedge against potential debasement of the US dollar.

Key events to watch this week

The Eurogroup will meet this week to discuss a strategy to bring Greece’s debts down to a sustainable level. Disagreement between the EU and the IMF on how to put Greece on a sustainable path is holding back the release of the 31.5bn euros tranche to Greece.

In addition, a number of European parliaments need to agree to the payment before it can be dispersed. The continued uncertainty will likely keep markets on edge a while longer.

ETFS Physical Swiss Gold Shares (SGOL)