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Greek Debt, U.S. Economy Affect Gold Market

Release Date: 
Wednesday, June 1, 2011

The gold market continues to be affected by news from Europe on the debt situation in Greece, U.S. economic data and currency shifts. The price of gold was $1535.70 per ounce at 7:04 a.m. Pacific Time on the New York Spot Market, down slightly on pressure from the possibility of a Greek bailout resolution in the euro zone that would avoid a default and credit downgrade. Other factors, including a lower U.S. dollar and weak economic data on the U.S. recovery supported gold.

"The weaker dollar sentiment is creating a positive metal sentiment," James Moore, an analyst at TheBullionDesk.com in London, said in a report. Gold continues "to benefit from investment and physical buying as the threat of peripheral euro zone default intensifies."

Edel Tully, the London-based analyst at UBS AG in London, said "Dollar weakness and Moody's having put Japan's sovereign rating on review for a possible downgrade underpins gold," in a report issued today.

Greece's next financial aid package may include incentives for bondholders to roll over maturing

debt without triggering a credit rating downgrade that could have disastrous effects on Europe's banking system. Luxembourg Prime Minister Jean-Claude Juncker said European leaders will decide on additional aid for Greece by the end of next month and have ruled out a "total restructuring" of the nation's debt.

Investors are looking ahead to U.S. non-farm payrolls data due on Friday for clues on the progress of economic recovery after grim data on Wednesday suggested the U.S. economy was losing momentum. Automatic Data Processing Inc. reported that U.S. companies added 38,000 jobs last month, far below the 175,000 expected by analysts.

"The market currently believes that the Fed will end its quantitative-easing program on June 30, but will reinvest the proceeds and maintain the size of its balance sheet," said Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago. "Such a delay in normalizing policy could be seen as positive for precious metals."

 

(Sources: "Gold futures edge up after ADP disappoints," MarketWatch, June 1, 2011; "PRECIOUS-Gold edges down on easing Greek debt fear," Reuters, June 1, 2011; "Gold May Decline in New York Trading on Outlook for Greece Debt Resolution," Bloomberg, June 1, 2011; "Gold Futures Rise on Dollar's Slump, Debt," Bloomberg, May 31, 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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