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Analysts: Debt Woes in Europe Help Gold

Release Date: 
Tuesday, July 12, 2011

The price of gold continued to see support from concerns over Eurozone debt crisis. Analysts at Commerzbank, ANZ and Lind-Waldock noted investors are moving to tangible assets such as gold in to minimize risks associated with the growing debt problems

"Today, there are concerns about the debt crisis in Europe. It's not only Italy, it's overall concerns about Spain as well and the stress tests, which are to be presented this Friday and this is definitely driving all commodities, but in this case gold is standing out as a big exception," said Commerzbank strategist Eugen Weinberg. "It's not surprising, given that gold is seen as a risk aversion test ... so right now, the demand for gold is likely also, driven by these concerns, to stay high."

"We'll probably see a lot of support for gold from rising risk aversion due to concerns of escalating debt in Europe," said Natalie Robertson, a commodities analyst at ANZ.

"With the currency volatility and the debt-contagion risk in Europe, investors are gravitating toward something tangible like gold," said Adam Klopfenstein, a senior strategist at Lind-Waldock, a broker in Chicago.

Eurozone finance ministers pledged cheaper loans, longer maturities and a more flexible rescue fund on Monday to help Greece and other eurozone debtor nations in their effort to stave off financial turmoil in Italy and Spain.

The International Monetary Fund is not yet ready to discuss conditions or terms of a second Greek bailout. The fund's new managing director, Christine Lagarde, added that Italian economic growth had to improve and see fiscal consolidation in order to restore confidence.

UBS analyst Edel Tully noted that he believes gold will trade above $1,600 per ounce in the third quarter, according to a UBS report yesterday.

(Sources:  "PRECIOUS-Gold in euros hits record as debt worries deepen," Reuters, July 12, 2011; "Gold Climbs Near $1,550 on Euro Zone Debt Crisis," CNBC, July 12, 2011; "Gold, Little Changed, May Gain for Sixth Session on European Debt Crisis," Bloomberg, July 11, 2011)

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