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Gold Over $1600 on European Debt Plan News

Release Date: 
Friday, July 22, 2011

Gold prices rose on Friday after European leaders announced on Thursday that Greece would receive 159 billion euros ($229 billion) in new aid. The price of gold was $1602.80 per ounce at 9:29 a.m. Pacific Time on the New York Spot Market.

Despite the announcement, UBS analysts noted investors remain skeptical pending further details on the new bailout. "While yesterday's agreement was as comprehensive as it could possibly be, many legal and political issues need to be ironed out and the crisis is far from solved," UBS analyst Edel Tully wrote in a research note. "Europe will remain a primary catalyst for further gains over the medium term. That gold hasn't reacted to any great extent suggests that many investors are not fully convinced by yesterday's developments."

In addition to Greece, the European plan seeks to address the economic problems of Ireland and Portugal. Named the "European Marshall Plan," the new bailout extends debt terms, though rating agencies issued strong warnings that such steps might constitute a limited form of default because creditors would not be repaid in full on original loan terms. The negotiations came after days of conflict among Europe's leaders over how to keep the debt crisis from engulfing the much-larger economies of Italy and Spain, a contagion threat that would pose a risk to the euro and could destabilize the entire global financial system.

"It is too early to say that all is going to be well," said Peter Fertig, a consultant at Quantitative Commodity Research, commenting on Europe. He added, "You still have the debt situation in the United States, where the debt ceiling has to be lifted." Ongoing negotiations between parties in Congress and the President have not yet led to a deal before the August 2 deadline to raise the $14.3 trillion borrowing limit, when the U.S. would default on its obligations.

(Sources:  "Gold Advances in London on Continuing Concern About Europe's Debt Crisis," Bloomberg, July 22, 2011; "Gold Firms as Worries Over Debt Persist," CNBC, July 22, 2011; "Europe Approves Bailout Plan For Greece, Other Nations," CNBC, July 21, 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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