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Record Gold on European Debt, U.S. Growth Concerns

Release Date: 
Wednesday, July 13, 2011

The price of gold traded at an all-time high of $1,583.10 per ounce at 7:14 a.m. Pacific Time on the New York Spot Market, as concern over the European debt crisis intensified. Worries over U.S. growth also fueled demand for the safe haven asset as minutes from the Federal Reserve's June meeting suggested some members were considering the need for additional monetary easing.
Moody’s Investors Service lowered Ireland’s debt rating yesterday, citing the probability the country will require additional official financing. Ireland joined Portugal and Greece yesterday as the third euro-area nation to have its credit rating cut to below investment grade, or to junk status. The cost of insuring debt from Italy, Spain and Portugal also climbed to new records this week.
“With European sovereign debt fears intensifying again, little clarity on what euro-zone officials intend to do next and cross-asset market confidence taking a bashing,” gold is benefiting, Edel Tully, a London-based analyst at UBS AG, said in a report today. “This should, in theory, be gold’s time to shine as a safe haven and as an alternative currency.”

"The debt crisis is if anything escalating, with ratings agencies now downgrading Ireland into junk territory. You have had rethinking on what should happen," said Credit Agricole analyst Robin Bhar. "We'll know more about thinking on the U.S. when Bernanke testifies, but it was interesting that the Fed, according to the minutes of the June meeting, seemed to bring about more thinking about quantitative easing... those Fed minutes seem to have stoked the fires (for gold)."
Gold “is still going to go for a significant period of time,” Martin Murenbeeld, the chief economist at Toronto-based DundeeWealth Inc., which manages more than $50 billion, said on July 11. “We’re in a very difficult financial period in the world. You have the European situation. The faith in paper currency is rapidly ebbing.”

(Sources: “Gold Rises to a Record as Debt, Growth Concerns Spur Demand as Alternative,” Bloomberg, July 13, 2011; “Gold Hits Record High as Euro Zone Crisis Worsens,” CNBC, July 13, 2011)

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