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Euro Gains, Optimism, Drive Gold Higher

Release Date: 
Monday, November 28, 2011

Gold moved above $1,700 per ounce on Monday on gains in the euro and news that Europe might take bolder steps to resolve its debt crisis. A recovery in equities also prompted gold buying. The precious metal was up 2%, or $34 in trading on the New York Spot Market as of 7:06 a.m. Pacific Time.

Commenting on the strong upward price move of gold, Dave Meger, head of metals trading at Vision Financial, said, "this is all being done on the back of a much, much stronger euro." Gold's push above $1,700, which comes after a week of trading slightly below that level, is also seeing strong technical support. The gold market has built a strong base around $1,675 and is "likely for the near term to leave those levels behind" as it marches higher, Meger said.

Central banks bought nearly 26 tons of gold in October. The increase in reserves is largely due to a purchase of almost 20 tons by Russia, in addition to buying from Mexico, Belarus and Colombia, according to IMF data.

Gold held on to gains after the International Monetary Fund said it was not in discussions with Italian authorities on a financing plan to resolve its debt, as was speculated. The IMF said reports of the deal in an Italian daily paper were "baseless" and "not credible," quelling rumors over whether an Italian aid package was imminent.

Moody's Investors Service warned on Monday that the fast escalation of the euro zone sovereign and banking crisis was threatening the credit standing of all European government bonds U.S. retailers took in a record $52.4 billion in sales over Thanksgiving weekend, a 16.4 percent jump from one year earlier. Expanded store hours and attractive promotions increased purchasing among consumers, trade groups noted.

"For now, we are seeing a bounce in financial markets after the record retail sales this Black Friday weekend. Bargain-hunters are back to push prices higher with a little bit of optimism," said Ong Yi Ling, an analyst at Phillip Futures in Singapore, discussing gold. "However, for this rally to be sustainable, we need a long-term resolution of Europe's problems. Investors will be focusing on the meeting of euro zone finance ministers on Tuesday for more operational details of the bailout fund." 

(Sources: "Euro Strength Buoys Gold Above $1,700," Wall Street Journal, November 28, 2011; "PRECIOUS-Gold jumps 1 percent on Europe's bailout hopes," Reuters, November 28, 2011)

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