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Analysts Comment on Economic Plan

Release Date: 
Friday, September 9, 2011

President Obama proposed a jobs plan on Thursday that would inject $447 billion into the economy through spending on infrastructure, subsidies to local governments to stem teacher layoffs, and halving the payroll taxes paid by workers and small-business owners.

"The plan reflects the government’s deep concern about the economy, raising the real possibility of another round of quantitative easing, which is supportive of gold," said Duan Shihua, head of corporate services at Haitong Futures Co. "We’re just getting some book squaring today as investors digest the news, but that just represents to us a good buying opportunity."

"In the long term, I think gold remains attractive amidst slowing growth and economic uncertainty," said Ong Yi Ling, an analyst at Phillip Futures. "Time will be needed before the measures proposed by President Obama are implemented and translate into growth. Effects will be lagged and it's not going to improve the job markets so quickly."

First-time applications for unemployment benefits rose last week, the U.S. Labor Department announced, adding to evidence of a worsening jobs market and faltering U.S. economy. Claims for unemployment benefits rose 2,000 to 414,000 in the week ended Sept. 3, data showed. The number was worse than expected, as the median target of economists surveyed by Bloomberg News had projected a drop to 405,000.

European Central Bank President Jean-Claude Trichet said yesterday "downside risks" to the euro area’s economy have intensified as the region’s debt crisis worsens. The central bank recently kept interest rates unchanged, which stopped a cycle of rate increases. "Concerns over the health of the European banks are aiding gains in the metal," said Kunal Shah, head of research at Nirmal Bang Commodities Pvt in Mumbai, discussing gold.

"Given the lack of other reliable safe-haven assets, gold is the best alternative in investors’ eyes," wrote Andrey Kryuchenkov, an analyst at VTB Capital in London, in a report. "Given the ongoing uncertainty and constant fear of global growth risks, the downside in gold remains limited."

(Sources: "PRECIOUS-Gold heads for weekly loss after Obama's $447 bln jobs plan," Reuters, September 9, 2011; "Gold Pares Weekly Decline as Stimulus Speculation Stokes Investor Demand," Bloomberg, September 9, 2011; "Gold Advances Toward Record Price on Concern About Slowing Economic Growth," Bloomberg, September 9, 2011)

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