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Analysts: Increased Demand for Safe Haven Assets

Release Date: 
Wednesday, October 26, 2011

The price of gold reached a one-month high and saw a four-day streak of gains as investors bought the metal on uncertainty over the EU summit of finance ministers. Domestically, U.S. consumer confidence (which measures confidence among shoppers in the world's largest economy) fell to its lowest in 2-1/2 years in October, helping gold prices. The metal traded at $1717.60 per ounce at 7:17 a.m. Pacific Time on the New York Spot Market.

Yesterday’s cancellation of a meeting among European finance ministers dampened hope that the EU will address its debt and banking crises. The recapitalization of Europe’s debt-exposed banks remains in limbo until other elements of the rescue package are settled, according to sources close to the contentious finance talks.

Analysts noted that demand for gold as a safe haven asset is rising with increased uncertainty in Europe. "The catalyst was the finance ministers' meeting cancellation…that really just unleashed a very strong wave of safe-haven buying," said Jim Steel, a precious-metals analyst with HSBC in New York, discussing gold.

"Safe-haven status is re-emerging," said Natalie Robertson, an analyst at Australia & New Zealand Banking Group Ltd. "Sentiment is still very, very fragile at the moment and today will continue to be uncertain. Everyone’s waiting on the developments out of Europe."

"The size of the debt issues are unlikely to go away regardless of what policy makers decide," analysts at in London wrote in a report. "Given this uncertainty we are not at all surprised gold is attracting fresh safe-haven buying."

(Sources: "Breaking Chains: Gold, Stock Prices Part Ways," Wall Street Journal, October 26, 2011; "Gold reprises haven role in four-day rally," Reuters, October 26, 2011; "Gold May Extend Climb Above $1,700 as European Crisis Concern Spurs Demand," Bloomberg, October 25, 2011;)

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