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Euro Lower on Year-End Italian Bond Auction

Release Date: 
Thursday, December 29, 2011

Gold moved lower on Thursday as the euro dropped to a 15-month low against the dollar following a disappointing Italian bond auction. The price of gold was $1533.50 per ounce at 7:25 a.m. Pacific Time on the New York Spot Market with silver at $26.87 per ounce. Despite the recent correction, gold remains in positive territory for 2011, up 10 percent, and is on track for its 11th straight annual gain.

"Gold has been one of the best performers this year, so it comes as no surprise that we are seeing some end-of-year profit- taking," said Ronald Stoeferle, a commodity analyst at Erste Group Bank AG in Vienna.

A closely-watched auction of Italy's 10-year bonds showed continued signs of debt stress in Europe, with yields rising to an unsustainably high level. "Sentiment is still down since it's the year-end and really you have larger problems at hand," said VTB Capital analyst Andrey Kryuchenkov. "The markets are still disappointed with the European Central Bank's reluctance to become the lender of last resort and changing fiscal discipline will take time."

"Yesterday and overnight the gold price traded lower as a reaction to the stronger U.S. dollar," said Bayram Dincer, analyst at LGT Capital Management, who added, "the fundamental investment case for gold is still intact." According to Dincer, "official and private sector buying will continue."

Physical gold demand may also support the gold price at current levels, HSBC analyst James Steel said. "With the recent drop in prices, we believe physical coin buying may pick up to support gold."

(Sources: "Gold Keeps Sliding," Wall Street Journal, December 29; "Gold Slides to Five-Month Low as Stronger Dollar Erodes Investment Demand," Bloomberg, December 29, 2011; "Gold Posts Longest Slump Since 2009," Bloomberg, December 29, 2011; "PRECIOUS-Gold near 6-month low after Italy auction," Reuters, December 29)

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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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