Rise in Market Volatility Strengthened Weekly Demand for Gold

Demand for the dollar subdued over the week, as reflected by the Lebanese pound’s peg against the dollar that went up from $/LP 1,510-1,514 with a mid-price of $/LP 1,512 to $/LP 1,508-1,512 with a mid-price of $/LP 1,510 this week. Foreign assets (excluding gold) at the Central Bank dropped a monthly 2.25% from $38.73B at end-November to $37.86B by end-December. Meanwhile, the dollarization rate of private sector deposits stood at 65.68% in November 2014 compared to 66.13% in December 2013.

The euro depreciated against the greenback after increasing possibility that the European Central Bank will implement quantitative easing policy, in addition to the Swiss National Bank (SNB) deciding to dispose of their euro cap. The euro weakened against the dollar by a weekly 1.61%, ending the week at €/$ 1.1628.

The persistence of low inflation rates in the U.S, in addition to the increased volatility of the currency after SNB’s decision, caused an increase in demand for gold. The price of gold swelled from $1,208.63/ounce on Thursday 9th of January 2015 to $1,261.16/ounce this week.

By Friday January 16th, 2015, 12:30 pm Beirut time, the dollar-pegged LP appreciated against the euro, rising from €/LP 1,781.56 the prior week, to €/LP 1,752.92. The Nominal effective exchange Rate (NEER) gained 0.84%, over the week to 150.56points, while its year-to-date gain reached 2.20%.

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