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Gold Trades Above $1550 on Italy Debt, U.S. Jobs

Release Date: 
Monday, July 11, 2011

The price of gold traded above $1,550 per ounce on Monday reflecting concerns over the spread of the euro zone debt crisis to Italy and slowing U.S. job growth. Gold traded at $1557.50 per ounce at 6:55 a.m. Pacific Time on the New York Spot Market, a two-week high for the precious metal.

The President of the European Council called an emergency meeting on Monday to discuss whether the debt troubles affecting Greece, Portugal and Ireland could spread to Italy, the euro zone's third-largest economy. A European bailout fund may have to be doubled to 1.5 trillion euros ($2.1 trillion) to cover a potential Italian debt crisis, the European Central Bank said.

"If we start to see more pressure on Italy, such as talk of debt default, gold will look to test the previous high," said Darren Heathcote, head of trading at Investec Australia. "Concerns over unresolved debt issues in the monetary union continue to haunt investors," said VTB analyst Andrey Kryuchenkov in a report. "A prolonged period of ultra-low currency yields and persistently dovish tone from the Federal Reserve will likely be supportive" for gold.

U.S. non-farm payrolls data on Friday showed job creation had slowed significantly, weighing on hopes for a U.S. recovery. The news helped gold prices achieve a 3.9 percent weekly rise in its best performing week since November 2009. U.S. employers added 18,000 workers in June, the fewest in nine months and below the 105,000 estimated by economists in a Bloomberg survey.

"There's some lingering reaction to the poor U.S. jobs data ... but this morning has mostly been about Europe and this emergency meeting called today to discuss Italy," said Credit Suisse analyst Tom Kendall. "As this European crisis develops further, you would expect to see, and we are already seeing, people coming into gold on the physical side," he said.

Global inflation concerns are also supporting gold prices. China's inflation climbed to a three-year high of 6.4 percent in June while the ECB raised interest rates on July 7 to fight higher prices. "Inflation will continue to be a big problem globally and this will keep gold prices supported," said Chi Duofeng, an analyst at Bohai Futures Co. in Changchun, China. "We remain bullish on gold for at least the rest of the year as the global macro-economic picture isn't encouraging."

(Sources: "Gold Climbs Near $1,554 on Euro Zone Debt Crisis," CNBC, July 11, 2011; "Gold Gains to Two-Week High as Debt, Growth Concerns Spur Investor Demand," Bloomberg, July 11, 2011)

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