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Analysts Cautious on Europe; See Gold Higher

Release Date: 
Thursday, September 15, 2011

Reassuring words from European leaders boosted stock markets today as the region contends with sovereign debt issues. The price of gold consolidated in response to greater risk appetite that pushed stocks higher.

European stocks climbed for a third day as Germany and France gave assurances on Greece. French President Nicolas Sarkozy and German Chancellor Angela Merkel said in a statement they are "convinced that the future of Greece is in the euro zone." Greek Prime Minister George Papandreou pledged to meet deficit-reduction targets demanded as a condition for an international bailout.

However, several analysts were less optimistic in their outlook for Europe, with some suggesting higher gold prices. Analysts at Mine Life Pty, VM Group, Australia & New Zealand Banking Group Ltd., HSBC and GFMS commented on Europe and gold.

As a result of "some positive news coming out of Europe last night, investors might be feeling a little bit more comfortable about that situation," said Gavin Wendt, founder and director of Mine Life Pty in Sydney. "But the overall trend is still down as far as Europe is concerned."

"It's the denial stage that's taken hold of all the markets-(a belief) that everything's going to be fine, the EU and U.S. leaderships can manage to put their economies to rights," said VM Group analyst Carl Firman. "I don't think that is the case, and I think it's only a matter of time before that comes home to roost. The gold price is probably going to benefit from that."

"A few soothing words by the leaders of France and Germany over the Greek predicament have helped calm fears of default and spurred buying in equities," Nick Trevethan, senior commodities strategist at Australia & New Zealand Banking Group Ltd., wrote in a report. Still, "prices could quickly rally back towards $1,900" should the metal near $1,850, he suggested.

HSBC lifted its gold price forecast for 2012 to $2,025 an ounce. "The euro-zone debt crisis, currency wars, and deep uncertainty among investors are among the factors driving prices higher," it said.

Metals consultancy GFMS said in a report on Thursday that it expects gold prices to break through $2,000 an ounce by year-end, as increased investment added to strong bar, jewelry and official sector buying.

(Sources: "Gold Falls Below $1,800 as Markets Rise," CNBC, September 15, 2011; "Gold Declines as German, French Support for Greece Cuts Safe-Haven Demand,"Bloomberg, September 15, 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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