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Failed Slovakian Vote on Euro Aid Lifts Gold

Release Date: 
Wednesday, October 12, 2011

Gold rose to a two-week high as concern over European debt increased demand for the precious metal. A key vote on European debt aid failed in Slovakia, the only country in the 17-nation euro zone that refused to ratify a planned reinforcement of the 440 billion euro European Financial Stability Facility rescue fund.

Slovakia is headed for a second vote after the failed vote also yielded a related no confidence vote for its Prime Minister, Iveta Radicova. However, the euro gained against the dollar as investors shrugged off the Slovakian parliament's rejection on the assumption the government would eventually endorse the rescue plan.

Gold will "continue to be underpinned by pockets of investor safe-haven purchases in addition to seasonally strong physical purchases," James Moore, an analyst at TheBullionDesk.com in London, wrote in a report.

"In a world where growth is slowing and we've yet to see a conclusive initiation of any kind of policy from policy makers, until that trend changes, I think gold is a haven," Andrew Gardner, an analyst at MF Global Australia Ltd., said by phone from Sydney.

Gold prices have been supported by central bank buying over the long term, particularly from emerging market nations who have been adding to their reserves in the last few years. Metals consultancy GFMS said on Wednesday that central banks could buy nearly 500 tons of gold this year, up from the estimate of 336 tons it made last month, as economic turmoil boosts the metal's safe-haven appeal. Demand from smaller investors in Asia was also firm.

Premiums in Singapore and Hong Kong remained at high levels because of the short supply of physical precious metals in the middle of a period of high seasonal demand.

(Source: "Gold Gains on Renewed European Debt Crisis Concern After Vote in Slovakia," Bloomberg, October 12, 2011; "Gold climbs as dollar weakens; Slovak vote supports,"Reuters, October 12, 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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