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Asian Demand Supports Gold As Euro Turns Lower

Release Date: 
Thursday, October 13, 2011

Gold traded near a four-week high on Thursday and has risen by more than 2 percent this week on robust demand from jewelers and other consumers in Asia as well as European debt worries. The gold market has been closing in on key resistance level of $1,700 per in recent days, "helped by renewed physical interest from Asia ahead of the festival season in India, with physical spot premiums holding high at the moment," said VTB Capital analyst Andrey Kryuchenkov.

Physical purchases in China and India ahead of the key gold-buying wedding and festival season have seen solid volumes and are expected to continue to escalate. "We still consider the gold price as being well supported by physical demand," said Commerzbank head of commodities strategy Eugen Weinberg.

The euro fell relative to a stronger dollar, but the currency was still near one-month highs while the dollar has recently been weak. "The strength of the dollar has hurt gold, but market sentiment remains positive towards the metal," said Nikos Kavalis, an analyst at Royal Bank of Scotland Group Plc in London. "Ultimately, given the ongoing government debt related crisis, safe haven gold is still appealing to investors and buying should push the price higher over the rest of the quarter."

Investors are looking to a key summit of European leaders on October 23 where France and Germany have vowed to unveil a comprehensive set of steps to combat the debt crisis. Euro zone countries will ask banks to accept losses of up to 50 percent on their Greek debt, officials have recently indicated.

In the United States, the minutes from the Federal Reserve's meeting in September showed the Federal Open Market Committee discussed the possibility of launching a fresh round of bond purchases before choosing a more limited stimulus.

"The FOMC's Sept 20-21 meeting minutes yesterday were moderately gold-friendly. They revealed that all options are open and some officials wanted to keep additional asset purchases as an option to boost the economy, with the discussion mostly focusing on long-term Treasuries," said UBS strategist Edel Tully in a note. "The Fed sounded concerned about economic growth, noting that additional accommodation would be needed if improvements in employment were too slow."

(Source: "Spot Gold Inches Lower," Wall Street Journal, October 13, 2011; "Gold Falls in London Trading as Dollar’s Rebound May Curb Investor Demand,"Bloomberg, October 13, 2011; "Gold eases as dollar offsets consumer boost," Reuters, October 13, 2011)

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