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Analyst: Aggressive Euro Monetary Policy Ahead

Release Date: 
Tuesday, November 29, 2011

Gold was steady on Tuesday after posting its second-largest one-day gain of the month yesterday. The euro was higher against the dollar after Italy sold three- and 10-year bonds prior to a major meeting of euro zone finance ministers. European equities were also higher which was positive for gold as investors showed increased optimism about potential solutions to the regional debt crisis.

One analyst at Societe Generale predicted an aggressive monetary solution to the ongoing debt worries. The European leaders are expected to approve use of the European Financial Stability Facility rescue fund to help prevent debt contagion in bond markets along with releasing aid funds to Greece.

"We remain bullish on gold, because we think the solutions are going to need more aggressive monetary policy, which will be positive for gold," said Jeremy Friesen, a commodities strategist at Societe Generale in Hong Kong. Trading activity is likely to slow through the end of 2011 as some traders book profits from investments in gold and move to the sidelines; however, "into 2012 we should see aggressive monetary policy being reflected in prices of gold," Friesen said.

Analysts at VTB Capital noted that investors are holding onto gold amid Euro-zone uncertainty. "The trade remains extremely choppy while intraday volatility is also exaggerated in thin trading volumes ... despite gold’s still fairly strong correlation to the broader equity and commodity market, market participants remain reluctant to liquidate in large volumes amid ongoing uncertainty" about the euro zone, the analysts said in a note to clients.

Gold prices have risen by more than 20 percent in 2011 and are set for their eleventh consecutive yearly price gain.

(Sources: "Gold fluctuates between small gains and losses," MarketWatch, November 29, 2011; "PRECIOUS-Gold steady as euro, stocks recover," Reuters, November 29, 2011; "PRECIOUS-Gold steady ahead of EU ministers meeting," Reuters, November 29, 2011)

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