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Germany and France Agree on Greek Debt

Release Date: 
Monday, October 10, 2011

Gold prices rose more than one percent on Monday after French and German leaders said they intend to solve Greece’s debt problems and have agreed to recapitalize European banks.  The dollar fell 1.4% against the euro which also supported gold prices. French President Nicolas Sarkozy said he and German Chancellor Angela Merkel were in "total agreement" on the recapitalization of European banks even though officials in Paris and Berlin previously signaled the countries were far apart in a solution.

"While a detailed plan was lacking, we view any progress on bank recapitalization as a positive for gold," said UBS in a note. "Typically liquidity concerns and funding issues are not gold's friends."

"At the moment, near-term direction does look very, very mixed, but on a longer term view, you still have to be positive given what we are seeing coming out of the physical markets, particularly in Asia," said Credit Agricole analyst Robin Bhar, commenting on gold.

"People are thinking the news flow is only beneficial in the short term. Europe still has to get its act together on a much longer-term basis," said Bhar, who noted that gold is attractive "as a form of insurance."

Gold "continues to be underpinned by strong physical and retail investment demand," said James Moore, an analyst at TheBullionDesk.com, in a note to clients. Chinese buyers returned to the gold market after the week-long National Day holiday, supporting prices. "The decline in gold prices recently has attracted retail interest as China's Golden Week holiday draws to an end," said HSBC in a note. "Sales during Golden Week were 50 percent higher from a year earlier as buyers took advantage of the price decline. Due to positive retail buying, we remain upbeat on gold prices," HSBC said.

Dennis Lau, director of sales operations for Chow Sang Sang Holdings Intl., the largest listed jewelry maker and retailer in Hong Kong, recently noted an increased number of gold buyers.

(Source: "Gold and silver futures rally as dollar drops," MarketWatch, October 10, 2011 "Gold rises 1 percent after EU banks pledge," Reuters, October 10, 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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