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Analysts Weigh in on European Debt Supporting Gold

Release Date: 
Wednesday, May 25, 2011

The price of gold rose on intense concerns over European debt, trading at $1525.30 per ounce at 6:42 a.m. Pacific Time. Gold priced in euros and British pounds climbed to records today as policy makers disagreed over how to solve Greece's fiscal woes. Euro-priced gold hit a trading record 1,087.84 euros per ounce while gold in the UK currency reached 942.60 pounds per ounce, near a lifetime high.

Several European Union officials expressed support for a "reprofiling" of Greece's debt, whereby its payback period could be extended and interest rates reduced. Moody's Investors Service is "very likely" to class a reprofiling of Greek debt as a default, according to Moody's EMEA Chief Credit Officer Alastair Wilson. Christian Noyer, a Governing Council member of the European Central Bank, yesterday ruled out a restructuring of Greece's debt, calling it a "horror story" that would leave the nation excluded from financing for years.

"Market participants remain nervous about peripheral debt troubles in the euro zone," Andrey Kryuchenkov, an analyst at VTB Capital in London, said today in a report. "Gold will remain well-supported in the short-term." Jeff Sherman, who helps manage $11 billion at DoubleLine Capital LP in New York, gave a longer-term outlook. "People view gold as a store of value and an alternative to the dollar," he noted. "We are still long on gold."

"The 'trump card' currency of choice is gold and in all likelihood it shall become even more readily embraced, not less so, in the days and weeks ahead as Europe's problems worsen," said Dennis Gartman, the economist and the editor of the Gartman Letter.

"People see the whipsaw in the currency market, and they want to buy gold and call it a day," said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago.

(Sources: "Gold May Gain for Fourth Day as European Debt-Crisis Concern Stokes Demand," Bloomberg, May 25, 2011; "Gold Hits 3-Week High on Euro Zone Debt Jitters," CNBC, May 25, 2011; "Gold Advances to Three-Week High on Demand for Haven From Europe, Dollar," Bloomberg, May 24, 2011)

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