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IMF to Boost Lending; Liquidity May Support Gold

Release Date: 
Wednesday, January 18, 2012

The price of gold was steady today trading at $1653.50 per ounce at 8:02 a.m. Pacific Time on the New York Spot Market with silver at $30.52 per ounce.

The International Monetary Fund (IMF) may expand its lending capacity by $500 billion to guard against contagion from Europe's debt crisis. The dollar fell on the IMF reports along with a report from Fitch Ratings saying that it did not expect Italy to default. "A weaker U.S. dollar should be supportive for gold," said Peter Fertig, owner of Quantitative Commodity Research Ltd. in Germany.

"Corrective gains in EUR-USD could continue as there are large short positions in the euro and further gains may result in a sharp short covering euro rally," HSBC said in a note. "This would likely support gold."

Markets were closely watching Greek Prime Minister Lucas Papademos as he resumed talks with private bondholders who are attempting to avoid a default. "There's considerable anxiety over Greece," said Nick Trevethan senior commodity strategist at ANZ in Singapore. A debt auction in Portugal today will also provide information on investor demand for European sovereign bonds.

"Core investment drivers have not changed significantly but have merely been delayed by the sovereign debt crisis surrounding the euro," said Walter de Wet, the head of commodities research at Standard Bank Plc in London. "Global liquidity will continue to grow in the current economic environment, which would be supportive for gold."

(Sources: "Gold firms as IMF talk, Fitch stance lift euro," Reuters, January 18, 2012; "PRECIOUS-Gold off one-month high; euro zone eyed," Reuters, January 18, 2012; "Gold May Climb on $500 Billion Lending Increase for IMF, Weakening Dollar," Bloomberg, January 18, 2012)

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