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Gold Breaks $1,600 Per Ounce

Release Date: 
Monday, July 18, 2011

The spot price of gold breached the $1,600 level for the first time as debt concerns in Europe and the U.S. boosted demand for safe haven assets. The precious metal traded at $1,601.00 per ounce at 7:06 a.m. Pacific Time on the New York Spot Market. However, this price level is still well below the inflation-adjusted high for the yellow metal set in January 1980.
Analysts at MKS Finance, Commerzbank, Sector Investment Managers, Barclays Capital, RBC Capital Markets and Saxo Bank provided their opinions on the market for the precious metal.
"Gold has room to go up. The smoldering debt crisis in the euro zone peripheral countries and the uncertainty over the debt limit in the United States are currently supporting prices," said Commerzbank analyst Daniel Briesemann. "It seems gold will stay well supported unless we get a real and convincing solution from the extraordinary EU summit that takes place on Thursday."

"Investors are increasingly looking to gold as a safe haven as the U.S. dollar, pound sterling and the euro continue to devalue against stronger currencies such as those of Canada, Australia, Norway and Switzerland," said Angelos Damaskos, chief executive of Sector Investment Managers.

"Both short-term and longer-term interest has turned significantly positive over recent sessions," Barclays Capital analyst Suki Cooper said in a note. "Investors see enough uncertainty in the world to warrant further gold purchases," said George Gero, vice president with RBC Capital Markets Global Futures. "There's more distrust of the political process, and we're on debt-ceiling and euro-zone watch."

“The market is showing concerns that the debt problem is not going away,” said Bernard Sin, the head of currency and metal trading at MKS Finance SA, a bullion refiner in Geneva. “Investors are happy to accumulate and $1,700 is not difficult to achieve” by the end of the year, he said.

President Obama and Congressional leaders continue to negotiate on a budget package as the August 2 debt ceiling deadline draws near. The U.S. Treasury department warned that the debt ceiling must be increased to avoid default, and the uncertainty on a resolution has led Moody’s and Standard and Poors to consider U.S. credit downgrades.

The cost of insuring euro zone debt against default jumped to record highs as investors worried about the failure of policymakers to quickly resolve the region's debt crisis. The debt contagion is reflected in the higher risk premiums for Italy, Spain, Ireland, Portugal and Greece.

(Sources: “Gold Futures Breach $1,600 on Debt Worries,” Wall Street Journal, July 18, 2011; “Gold Rallies to Record in Best Run Since 1980,” Bloomberg, July 18, 2011; “PRECIOUS-Gold rises above $1,600/oz as debt fears simmer,” Reuters, July 18, 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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