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Moody's Warns on France as German Confidence Falls

Release Date: 
Tuesday, October 18, 2011

A Moody's warning on French debt, waning confidence in Germany and slower growth in China pressured the euro and gold lower as the dollar saw gains.

In Europe, Moody's Investor Services warned France's Triple-A credit rating could be at risk if the cost of rescuing French banks exposed to european debt stretches its budget too much. Compounding euro zone worries, a reading of German business confidence within the corporate sector fell to its lowest level in nearly three years this month. Germany is the euro region's strongest economy.

The Chinese economy expanded at its slowest pace in two years during the third quarter. This added to fears that growth in emerging economies may not be strong enough to offset slowing economies in the U.S. and Europe. The Chinese economy grew by 9.1 percent in the three months between July and September, less than the 9.2 percent expected by the markets and the 9.5 percent growth rate in the prior quarter.

Market watchers are anticipating an October 23 meeting among euro zone policy makers and a potential plan to address the region's debt.  Commenting on gold, MKS Finance head of trading Afshin Nabavi said, "we are in the same trading range of $1,600 to $1,700 and my feeling is that if (the Europeans) don't come up with any results, we are going to go much, much higher."

Gold demand in India, the world's largest bullion buyer, will be strong in the October-December quarter, a traditional time for festivals and weddings, despite high inflation that eats into savings and multiple growth-choking central bank rates hikes. "We think that demand from India will be resilient to higher gold prices for the remainder of the year on the back of seasonality and increased investment interest," said Edel Tully, strategist of UBS, the biggest supplier of the metal to India.

Demand for gold in India, Asia's third-largest economy, soared 83 percent in 2010 from the year earlier, according to GFMS, a precious metals consultancy that is part of Thomson Reuters. "My sense is that demand will be 30-40 percent higher than the fourth quarter of 2010. Investment demand is already on a peak," said Gnanasekar Thiagarajan, director with Mumbai-based research firm Commtrendz.

(Sources: "Gold Slides as Macro Worries Lift Dollar,"CNBC, October 18, 2011; "Chinese Government Has Limited Tools as GDP Growth Slows,"CNBC, October 18, 2011; "Gold drops as macro worries favor dollar," Reuters, October 18, 2011; "Gold slides after German data dents euro," Reuters, October 18, 2011; "India to See Robust Gold Imports in Festive Quarter," IB Times, October 18, 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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