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Analysts Focus on Uncertainty in Greece, U.S. Fed

Release Date: 
Friday, June 24, 2011

Analysts from VTB Capital and Investec Australia noted that Greece's debt crisis and the sluggish growth in the U.S. economy provided support for gold prices.

European Union leaders pledged to help Greece avoid a default on its debt provided the government adopts an austerity budget plan next week. However, the euro fell against the U.S. dollar on continued wariness over the Greek debt crisis.

Gold has recently been supported in part by the belief the Federal Reserve will keep interest rates low for an extended period in an effort to bolster the lagging economy. The Federal Reserve cut its forecast for U.S. growth this week, but did not suggest that additional policy actions (such as a new program of quantitative easing) to help the U.S. economy.

"You have Greece and there was nothing to indicate from the Fed that they're turning hawkish just yet," said VTB Capital analyst Andrey Kryuchenkov, who also expects more volatility in the market as the trading range widens.

"We still are in very uncertain times and it's likely to continue until we see greater signs of economic growth globally, particularly in the United States, and we start to see the European debt situation ease," said Darren Heathcote, head of trading at Investec Australia.

"While those problems remain we are likely to see gold well supported," Heathcote said. "Investors flee to gold in times of trouble as they have done consistently for a very long time."

(Sources: "PRECIOUS-Gold steadies as investors mull Greek crisis," Reuters, June 24, 2011; "Gold Tracks Currencies," Wall Street Journal, June 24, 2011; "Gold May Decline as Stronger Dollar, EU's Stabilization Pledge Sap Demand," Bloomberg, June 24, 2011)

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