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Analysts: Greece Debt Crisis Could Help Gold

Release Date: 
Tuesday, June 28, 2011

June 28, 2011

The price of gold rose on Tuesday along with oil prices following a slight gain by the euro as negotiations continued among officials and nations over the Greek debt crisis. However, the cloud of uncertainty over Greece is among positive factors for gold prices according to analysts at Basemetals.com, Richcomm Global Services and Deutsche Bank.

European Central Bank Executive Board member Juergen Stark said that he doesn't expect the international community to finance Greece further after July if the country doesn't implement its austerity plan.

"We would not be surprised to see a pick-up in safe-haven interest [for gold] in the short term," William Adams, an analyst at Basemetals.com in London, said today in a report. "Given the uncertainty over Greece, we are surprised they have not attracted more safe-haven buying," he said, referring to gold and silver.

Positive developments for Greece containing its crisis include a proposal by heavily-exposed French banks to roll over Greek debt and talk that European Union officials are developing a contingency plan if Greece's parliament rejects a mandatory austerity package.

Any improvements in the Greek situation could drive the euro higher versus the dollar, potentially helping gold prices. "Even with the events going on in Europe, the euro-dollar [ratio]has still been at $1.40-1.42 -- still quite an undervalued level for the dollar, despite what is going on in Europe," said Michael Lewis, head of commodities research at Deutsche Bank.

"If there is any slight marginal improvement in Europe, and if the European Central Bank is going to be starting to raise rates in September and December, you might have a currency story that could be quite positive for gold," Lewis noted.

"Over the long run, gold's prospects will remain intact, as economic and fiscal uncertainties on both sides of the Atlantic are expected to continue boosting the appeal of the metal," according to a note from Dubai-based Richcomm Global Services.

(Sources: "Gold Advances for First Time in Four Days on European Sovereign-Debt Woes," Bloomberg, June 28, 2011; "Gold futures edge back above $1,500 an ounce," MarketWatch, June 28, 2011; "Gold Climbs Above $1,500 as Euro, Oil Recover," CNBC, June 27, 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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