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Analyst: Gold is Compelling

Release Date: 
Tuesday, May 22, 2012

The price of gold moved lower today ahead of an informal meeting of European leaders aimed at tackling the European debt crisis. Gold was down $9.90 as of 7:16 a.m. Pacific Time on the New York Spot Market, trading at $1,583.50 per ounce. Spot silver was $0.08 lower, trading at $28.49 per ounce. (Click here for the most current spot prices.)

French President Francois Hollande is hoping to convince EU leaders to mutualize European debt among the eurozone countries at the informal EU summit held in Brussels later this week. He faces opposition from German Chancellor Angela Merkel.

Several analysts are bullish on gold, including investor Dennis Gartman, who sees gold rising along with equities. "Most people don’t think gold and stocks can go higher together, but I expect to see them trade dramatically higher over the course of the next several months," he said. "The trend is now higher." All told, "The public is massively bearish and that tells me it’s time to be bullish," he says.

Veteran independent analyst Frank Veneroso has penned an essay entitled "At The Threshold Of The End Of Central Bank Independence, Gold Is Compelling." He wrote: "It may finally become clear to market participants that the body politics around the world will demand that central banks implement debt-eroding inflations." Veneroso added, "with the death of the myth of independent central banking, gold should assume a unique position as a monetary asset. I think we are very close to this point."

At the Hard Assets Conference earlier this week, Greg Weldon of Weldon Financial described Europe’s sovereign debt issues using an analogy of a sink and drain. "It's going to be very difficult to see how economies in Europe, the U.S. and Japan can stand on their own two feet without the assistance of central banks debasing currency through debt monetization," he said. "I liken it to filling the sink halfway up with water and pulling the plug out of the drain. Of course, the water level will recede unless you turn the faucet on and start more water pouring into the sink. The level of water represents asset prices, the water flowing out of the faucet represents liquidity provided by global central banks and the drain represents the real macro economy, which has not been fixed."

"At the end of the second round of qualitative easing, when the Fed shut off the faucet, the water level (asset prices) started to go down. But now the water is running again -- particularly with some of the measures instituted by the European Central Bank, with its three-year loan program, the federal liquidity swaps and the back-ended way that it's managed to involve the International Monetary Fund," he explained. "The problem with all of this is it does nothing to fix the underlying problem, which is too much debt. This is not sustainable."

(Source: "PRECIOUS-Gold falls as euro sags ahead of EU meeting," Reuters, May 22, 2012; "Gold: The World's Friend for 5,000 Years,", May 22, 2012; "Dennis Gartman Buying Gold and Stocks," CNBC, May 21, 2012; "Gold bushwhacks bears," MarketWatch, May 21, 2012)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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