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March 18, 2013

Release Date: 
Monday, March 18, 2013

Gold and silver prices moved higher on the New York Spot Market following news that Eurozone member Cyprus would tax bank deposits as part of a bailout from the EU and IMF to avoid a collapse of the banking system. Under the most current proposal, the tax on bank deposits would range from 3% to 15%. (“Cyprus Postpones Debate on Deposit-Tax Proposal,” WSJ, 3/18/13.)

PIMCO’s Co-Chief Investment Officer told CNBC the bailout raises issues of "sanctity of bank deposits in Europe… Europe lit the fuse of two sticks of dynamite on Saturday. One is very clear. By including small depositors they are risking social unrest, political disorder, and an exit from the euro zone." (“Cyprus Bank Tax Lit 'Two Sticks of Dynamite': El-Erian,” CNBC, 3/18/13.)

Several analysts commented that gold prices have benefited from the Cyprus banking crisis. Commerzbank analysts wrote that gold should benefit from the current Eurozone crisis: “Gold should profit from the possibility that savings are no longer regarded as safe, and should thus enjoy strong demand in the current market environment. We therefore expect to see prices continuing to rise…” (Gold rises as Cyprus deposit tax spooks markets,” MarketWatch, 3/18/13.)

This view was shared by the investment bank Kleinwort Benson: “Events such as these remind investors about the value of safe-haven investments such as gold, which provides a buffer to the vagaries of international geopolitics and downside market events.” (“Gold price jumps on Cyprus worries,” The Telegraph, 3/18/13.)

A precious metals analyst at UBS, said this new eurozone crisis may bolster gold’s status as a safe-haven asset: “As people start to worry about the safety of their deposits, gold would become an attractive alternative and an escalation of these worries would prompt a return of fear-related physical buying. With gold’s correlation with risk and the euro currently in negative territory, the yellow metal looks well positioned to rally on the back of recent eurozone developments…” (“FOCUS: Gold Rises On Cyprus Bailout News,” Forbes, 3/18/13.)

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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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