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Analysts: Euro News Supports Gold

Release Date: 
Friday, October 28, 2011

Gold prices reached five-week highs after European leaders agreed on measures to address the region’s extended debt crisis.  The deal included increasing the region’s rescue-fund capacity to $1.4 trillion, creating a second aid package for Greece, and convincing holders of Greek bonds to accept a 50 percent loss.  Analysts and investors saw gold benefiting from developments in the Euro-zone, regardless of whether the news is positive or negative for Europe.

"The European debt deal should help gold in two ways," said Jim Pogoda, an investor in Summit, New Jersey, and a former precious-metals trader for Mitsubishi International Corp. "For the non-believers, safe-haven buying should keep the market well bid.  For those thinking that impediments to growth have been lifted, the further stimulus should be viewed as gold-positive as well."

"Support will come from newfound ability to trade higher amid both positive and negative news from the euro zone, small increases in investment flows, and from growing speculation over rate cuts in China," said Tom Pawlicki of MF Global.

The path of the U.S. dollar should also play an important role in where gold trades from here, UBS analyst Edel Tully said.  The increase in risk appetite following the European summit has pulled the dollar lower.

"We still firmly believe that the risks in the system longer term justify even higher prices," Commerzbank analyst Eugen Weinberg noted.

Central banks continue to add to gold reserves, with Thailand, Bolivia, Kazakhstan and Tajikistan adding a combined 26.7 metric tons of gold to reserves in September.

(Sources: "Spot Gold Down, but Heads for Weekly Gain," Wall Street Journal, October 28, 2011;

"PRECIOUS-Gold eases after EU debt deal spurs risk rally,"Reuters, October 28, 2011; "Gold Declines as Best Week Since August Spurs Investor Sales," Bloomberg, October 28 2011)

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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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