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Europe in Focus as Gold Rises

Release Date: 
Tuesday, October 25, 2011

Gold headed for a third consecutive day of price increases today as markets reacted to the news that tomorrow’s planned meeting of the top euro-zone finance ministers to discuss European debt crisis solutions was cancelled.

Despite the setback, EU leaders reportedly have tentative plans to reduce Greece's debt, recapitalize European banks, and strengthen the euro zone's rescue fund to provide partial insurance for sovereign bonds.

According to ANZ head of metal sales Peter Hillyard, "with more turmoil, more uncertainty, the end of the fourth quarter and early into the new year, I believe the gold price will be higher based on what I think will be a failure to resolve, in a satisfactory way, all of the euro zone problems and so on ... at the moment, I would rather be long of gold than short of it."

Independent investor Dennis Gartman says he is prepared to buy back the gold he sold when he cut his holdings in half on Oct. 18 to take profits, noting that prices would certainly move upward.  "In light of the fact that gold is back to the levels that we sold last week, we thought it wise to be on guard and prepared to buy back that which we had sold," Gartman said in his newsletter, the Gartman Letter.

"This is a crucial day for gold," said a senior market strategist with MF Global. "It's moving up with bonds, the dollar and the yen, and that tells me the 'flight-to-quality' money is back in."

In the United States, consumer confidence fell to its lowest levels since March 2009. This drop may signal a weak holiday shopping season which may further worsen an already lagging economy.

Gold could "easily" rise to $2,200 an ounce in the next two years as costs increase and global financial concerns persist, said the chief executive officer of AngloGold Ashanti Ltd., the third-largest producer of the metal. "It costs almost $1,200 to produce an ounce of gold," Mark Cutifani said at a conference in Perth, Australia. "The gold price probably reflects the fundamentals of the industry."

(Sources:  "Gold set for best three-day rise in a month,"Reuters, October 25 2011; "Gold May Extend Rally to Record $2,200 Per Ounce, AngloGold Ashanti Says," Bloomberg, October 25, 2011; "Investor Gartman says prepared to buy back gold position,"CNBC, October 25, 2011; "Gold Rises 2% on Euro-Zone Uncertainty," Marketwatch, October 25, 2011; "Gold surges as U.S. consumers turn gloomy," Reuters, October 25, 2011; "PRECIOUS METALS: Gold Climbs Amid EU Deal Jitters," WSJ, October 25, 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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