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Gold Higher as SandP Downgrades Spanish Banks

Release Date: 
Friday, May 25, 2012

Gold rose on improved U.S. consumer sentiment despite a falling euro which touched a 22-month low after Spain's wealthiest autonomous region requested assistance to refinance its debt. Gold was $11.50 higher at 10:38 a.m. Pacific Time on the New York Spot Market, trading at $1,570.30 per ounce. Spot silver was $0.13 higher, trading at $28.55 per ounce. (Click here for the most current spot prices.)

Trading is expected to remain light ahead of the Memorial Day weekend with markets closed in the U.S. on Monday.

The board of Spanish Bank Bankia SA will ask for 19 billion euros from the Spanish government. Standard & Poor's had lowered the credit rating of Bankia and four other Spanish banks today after the agency downgraded Spain's government bonds last month.

On Thursday, CME Group Inc., the world's largest commodities exchange, announced it would cut margins for trading gold by 10 percent, effective May 29. Margins for trading gold have been lowered by about 21 percent this year. "Margin reductions tend to have a less immediate impact on prices than margin hikes," ANZ Bank said in a note. "Nevertheless, the reduction is likely to be mildly supportive going forward."

Michael Yoshikami, CEO, Founder & Chairman of Destination Wealth Management, cited several reasons why gold should be part of an investment plan: (1) Central banks will continue to diversify out of U.S. dollars and European currency; "central bankers around the world will continue to buy gold as a substitute for unstable currencies."; (2) India and China will continue to consume record amounts of gold as affluence rises; (3) future inflation: "When inflation does rise, tangible assets will provide some level of inflation protection. Given the incredible stimulus policies around the world, it's hard to imagine that pent-up inflation is not bubbling below the surface in global economies. Assets such as commodities and other tangible goods tend to do well in inflationary environments. Gold is no exception to this trend."

(Source: "Bankia Seeks €19 Billion From Spanish Government," The Wall Street Journal, May 25, 2012; "PRECIOUS-Gold rebounds, but stays on track for weekly loss," Reuters, May 25, 2012; "Yoshikami: Four Things You Need to Know About Gold Now," CNBC, May 25, 2012)

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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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