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March 26, 2013

Release Date: 
Tuesday, March 26, 2013

Gold fell below $1600 per ounce in morning trading on the New York Spot Market along with a drop in silver prices. The drop was attributed to technical buying although analysis from Kitco indicates gold continues to show resilience:

“Gold bulls can make an argument that this week’s pullback in gold prices is modest when compared to the strong gains seen in the U.S. dollar index on Monday. The dollar index was solidly lower early Monday morning and then made a dramatic turnaround to close sharply higher on the day. While gold prices were somewhat pressured on the greenback’s big rally Monday, the metal did show resilience in the face of it.” (Gold Weaker on Technical Selling; Traders Await Fresh News,” Kitco, 3/26/13.)

Cyprus extended its bank closings through Thursday despite an earlier promise to open most banks by today. As a result, businesses are being crippled due to the lack of cash. The head of the Cyprus Employers and Industrialists Federation said, "[t]he continuation of this uncertainty is pushing the economy deeper into recession, some businesses could possibly lose their clients, but we're hopeful once this situation is sorted out, the market can rebound quickly…." (Cyprus bank shutdown hammering businesses as it enters second week,” Fox News, 3/26/13.)

The next euro zone country to face a banking collapse may be Slovenia. Slovenia banks reportedly hold approximately 7 billion euros in bad loans, equal to about 20 percent of GDP. The country has also experienced political uncertainty following a corruption scandal which led to a change in government. Luxembourg and Malta also have higher ratios of banking sector balance sheets to GDP than Cyprus; however, neither nation is believed to have the same risks that were present in Cyprus. (What next after Cyprus bailout?” Reuters, 3/26/13.)

The fear that other euro zone countries will attempt to right their fiscal ship on the backs of bank depositors may support gold. “An increase in safe haven demand, particularly in periphery European nations such Spain and Italy will likely support gold. Citizens in these countries are alarmed by how depositors in Cyprus were treated and the more aware and prudent ones are taking the requisite action in order to protect their families and businesses from the growing possibility of capital controls.” (“Italians Value Gold Reserves - EU Deposits To Flow To Gold,” IBT, 3/26/13.)

Texas is looking to repatriate approximately $1billion worth of gold owned by the state’s university system investment fund. The gold is currently held at the Federal Reserve depository in New York. Commenting on the plan, Congressman Ron Paul, who represents a Texas district, told the Texas Tribune, “If you think gold is a hedge, or a protection, you always want it as close to the individual and the entity as possible… Texas is better served if it knows exactly where the gold is rather than depending on the security of the Federal Reserve." (“A Run on the Fed?” The New York Sun, 3/26/13.)

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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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