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Data Suggest Slow Global Growth, Supporting Gold

Release Date: 
Thursday, June 2, 2011

The price of gold is being supported by concerns about a slowing global economy as reflected in recent data. The ongoing Greek debt issues affecting the euro zone are also supporting the precious metal which traded at $1536.00 per ounce at 7:26 a.m. Pacific Time on the New York Spot Market.

Manufacturing growth in China, the euro region and the U.S. slowed in May, adding to signs the global economy is weakening. The Institute for Supply Management's factory index fell more than projected to 53.5 last month, the lowest level since September 2009. Yesterday's job report figures from ADP on new U.S. non-farm payrolls fell far below expectations of 175,000, showing only 38,000 new jobs, which added to concerns about the world's largest economy.

"We've recently seen a lot of worse-than-expected economic data," said Ong Yi Ling, an analyst at Phillip Futures, "The economic uncertainty will keep gold underpinned." If gold effectively broke above a key resistance level at $1,550, it could rise above the record high of $1,575.79, set on May 2, Ong said. 

"Investors bought the safe-haven asset" after signs of economic slowdown in the U.S., wrote Mark Pervan, head of commodity research with ANZ Banking Group Ltd., in a research note today. Continued central-bank purchases of bullion also provided "additional support and positive sentiment for gold."

Russia and Mexico added gold now valued at almost $1 billion to their reserves in April. Russia bought 13.72 metric tons, raising holdings to 824.83 tons, according the International Monetary Fund. Mexico's assets rose 5.93 tons to 106.14 tons, IMF data showed.

Moody's Investors Service raised Greece's risk of default on its debt to 50 percent as European officials rushed to package the second bailout plan in two years in order to avoid renewed financial turmoil in the euro zone. According to a report published late yesterday Moody's downgraded Greece to Caa1 from B1, putting it on a par with Cuba. The shift came after policy makers considered asking investors to reinvest in new Greek debt when existing bonds mature.

(Sources: "Gold May Advance as Economic Slowdown, Greece's Debt Turmoil Spur Demand," Bloomberg, June 2, 2011; "PRECIOUS-Gold steady on Greek crisis, US growth concerns," Reuters, June 2, 2011 "Gold futures edge up after ADP disappoints," MarketWatch, June 1, 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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