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European Liquidity, Euro Boost Lend Support

Release Date: 
Wednesday, December 21, 2011

Gold prices were supported today as the euro strengthened in the wake of news that European banks accepted loans from the European Central Bank (ECB) to avoid a liquidity shortage. Gold traded at $1613.40 per ounce at 6:47 a.m. Pacific Time on the New York Spot Market while silver was at $29.38 per ounce.

European financial institutions accepted 489 billion euros in the ECB's offer of three-year funding, the first time ever the bank has made such loans. The high level of lending beat expectations. "You have to regard it as a positive result," said Societe Generale analyst James Nixon. "This is at least a solid 240 billion euros (net) increase for banks."

The positive news sent the euro sharply higher, along with equities. "The rebound in gold today is related to the currency market," said Dick Poon, manager of precious metals at Heraeus in Hong Kong. The analyst said gold could reach $1,650 per ounce by the end of the year.

"The key thing here is the very strong euro rebound," said VTB Capital analyst Andrey Kryuchenkov. "Because gold is so closely correlated with equity markets, with the dollar, you've had this rebound."

(Sources: "PRECIOUS-Gold climbs as ECB tender lifts euro," Reuters, December 21, 2011; "PRECIOUS-Gold hits one-week high on upbeat US, German data," Reuters, December 21, 2011)

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