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Gold Higher as Central Banks Boost Liquidity

Release Date: 
Wednesday, November 30, 2011

The Federal Reserve, the European Central Bank and four other central banks jointly cut the cost of U.S. dollar-swap arrangements by fifty basis points in efforts to increase global liquidity. "This has alleviated any concerns of any banks having year-end liquidity problems," said analysts at TD Securities.

Gold prices surged on the news with the precious metal trading at $1746.00 per ounce on the New York Spot Market as of 7:21 a.m. Pacific Time, up $29.60 per ounce, or 1.73%. "We've had a pretty powerful move up, very quickly in a very short space of time. It's interesting that the greatest impact is on gold though…it's quite one-dimensional," said James Steel, precious-metals analyst with HSBC in New York.

The central bank actions weakened the dollar and lifted the euro to a one-week high against the greenback, supporting a rise in gold prices. "The euro has been weak and gold has a positive relationship with the euro," said Mr. Steel. Until today's strong price move, "that's really what's held gold from being able to go higher," he noted.

Several analysts were still pessimistic about prospects for a Euro-zone recovery despite the actions by the central banks. "Europe is still looking like it's probably heading for a recession next year, and that issue is not going away," said David Wilson, director of metals research and strategy at Citi.

"We still think there's an enormous amount of skepticism; that people don't think that Europe is going to deliver," said Rob Ryan, FX strategist at BNP Paribas in Singapore.

(Sources: "Gold Rallies on Central Bank Coordination," Wall Street Journal, November 30, 2011; "PRECIOUS-Gold rises after central banks' liquidity drive," Reuters, November 30, 2011)

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