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EU Summit Seen Yielding Few Major Decisions

Release Date: 
Thursday, June 28, 2012

Gold prices were lower on Thursday as the euro and equities fell on continued pessimism that the European Union (EU) summit which begins today will not produce measurable results. Gold was $21.10 lower at 7:49 a.m. Pacific Time on the New York Spot Market, trading at $1,554.10 per ounce. Spot silver was $0.55 lower, trading at $26.49 per ounce. (Click here for the most current spot prices.)

Economists at Barclays "expect the discussions to draw a roadmap for fiscal, financial and political union, but do not anticipate any major decisions on concrete short-term measures to reduce market stress beyond what has already been agreed...."

John Embry, Chief Investment Strategist Sprott Asset Management, emphasized the severity and urgency of the European crisis. "All I know is that these numbers are staggering ...We are on the edge of collapse. We've run out of time," he said, noting that if the euro does split apart, it "will be extraordinarily chaotic." According to Embry, "We've got to focus on what's coming up in the short-run with regards to the European situation. It's going to be an extremely interesting summit they are hosting this Thursday and Friday. The problems are piling up at such an enormous rate they can't be ignored anymore."

"There was this amazing back and forth...where Merkel said, 'There would not be euro bonds as long as she was alive.' Then, not longer after, Monti, the Prime Minister of Italy, came out and said that if there weren't euro bonds, he was going to resign," Embry said. He went on to say "If they don't take action, continue to play this brinksmanship, and this thing gets away on the downside, when you get a hard deflation going, it's really difficult to reverse."

"I don't think you can say anything with total assurance, for the simple reason that we have never, ever been remotely in a condition like this in all of world history," Embry said. "So the only things that I am comfortable in at this moment are physical gold and silver and gold and silver shares."

Gold can rally without more quantitative easing by the Federal Reserve and it can rally alongside a stronger dollar, wrote Weeden & Co. strategist Michael Purvesthis. The firm said gold may rise to $1,700 within three months. "We believe that the long term rally in gold is derived from the long term structural debasement of the four reserve currencies. While investors this year have been groping for visibility on QE3 to help gauge whether to be long or short gold, we believe the long term trends in gold accumulation will not cease if we don't see any incremental Fed balance sheet expansion...."

(Sources: "PRECIOUS METALS: Comex Gold Retreats On EU Caution," Wall Street Journal, June 28, 2012; "Gold To $1,700 By September, Weeden Says," Barron's, June 27, 2012; "Embry: We're On The Edge of Collapse, We've Run Out of Time," King World News, June 26, 2012)

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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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