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Italian Prime Minister to Resign Over Debt Crisis

Release Date: 
Wednesday, November 9, 2011

Gold moved higher on Wednesday in early trading as doubts lingered over whether Italy could resolve its debt crisis. Italian Prime Minister Silvio Berlusconi has agreed to resign after parliament passes budget reforms demanded by the European Union leadership. Gold traded at $1796.40 per ounce as of 6:12 a.m. Pacific Time on the New York Spot Market.

Yields on 10-year Italian bonds rose to 7 percent. This high interest rate is considered significant given that other European countries such as Portugal and Ireland were forced to seek assistance after their bond interest rate reached 7 percent.

The announcement of Berlusconi’s resignation follows the planned departure of Greece’s Prime Minister. There, a succession plan for the former European Central Bank vice-president to lead a unity government is stalled,  prolonging a leadership gap as the country faces possible bankruptcy.

"The market is extremely worried. Changing leaders both in Greece and Italy doesn't change the fiscal situation and leaves us with a period of uncertainty," said Ole Hansen, senior manager at Saxo Bank.

"Europe is approaching the end game -- credit markets and other governments know what its leaders won't admit -- the euro is failing," said Peter Morici, an economist at the University of Maryland business school. "And then gold, more than the dollar, is set to rocket in value as the crisis unfolds. A massive bailout from Germany with contributions from France and smaller northern states will ultimately be needed, or Italy would follow Greece into default."

In China, gold consumption is expected to jump nearly 50 percent, the China Securities Journal reported on Wednesday.

(Sources: "Gold nudges higher as Italy debt fears grow," Reuters, November 9, 2011; "PRECIOUS-Gold steadies, Italy's debt worries linger," Reuters, November 9, 2011)

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