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Analysts Comment on Currencies and Uncertainty

Release Date: 
Monday, August 15, 2011

Several analysts and bankers expect continued support for gold prices from ongoing global economic uncertainty along with related currency developments. Weak U.S. consumer confidence numbers on Friday added to concerns of a fading U.S. recovery while the European debt crisis remains in focus. U.S. economic data, including the Consumer Price Index numbers and initial jobless claims data, are due on Thursday.

The head of the World Bank, Morgan Stanley, MF Global, UBS and Commerzbank provided their commentary. World Bank Chief Robert Zoellick said on Sunday the loss of market confidence in economic leadership in the United States and Europe, coupled with a fragile economic recovery, have pushed markets into a new danger zone. He said uncertainty about the role of currencies was driving financial markets towards the Australian dollar, the Swiss franc and gold.

"Uncertainty in financial markets, whether from the growth outlook or the ongoing sovereign debt crisis, is expected to remain a benefit to perceived safe-haven commodity assets, of which we believe gold is the stand-out exposure," said Morgan Stanley in a note.

"There are some further data points this week out of the United States later ... we have to wait and see how that data will come in. If it disappoints, that might be a reason why the gold price goes up again," he added. "(And) the debt crisis in the euro zone is far from over," said Commerzbank analyst Daniel Briesemann.

Speculation that the Swiss government may peg its currency to the euro could benefit gold prices. Though the currency has traded at record highs against the dollar and euro in recent weeks, Swiss authorities are concerned that the high exchange rates will pressure domestic growth and are considering introducing a fixed-exchange rate with the euro to reduce the threat to expansion.

"Any type of changes in currency dynamics causes people to get into the yellow currency-gold," said Adam Klopfenstein, a strategist with MF Global. With the upside for haven currencies such as the Swiss franc and the yen capped by possible intervention, "redirection of flows in favor of gold is likely to persist," said UBS precious metals strategist Edel Tully.

(Sources: "Gold Eases As Traders Watch Equities, Europe," Wall Street Journal, August 15, 2011; "Gold continues retreat," Financial Times, August 15, 2011; "PRECIOUS-Gold extends losses as stock markets recover," Reuters, August, 15, 2011)

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