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Slower U.S. Growth Seen as Debt Worries Hit France

Release Date: 
Friday, August 12, 2011

The U.S. economy will expand at an average 2.3 percent annual rate in the second half of the year, roughly a percentage point less than projected last month, according to the median forecast of 53 economists polled by Bloomberg News in August.

Gold may top $2,000 an ounce on speculation that the global economy will weaken, Mitchell Krebs, chief executive officer of Coeur d'Alene Mines Corp., said in a Bloomberg Television interview. "There are few alternatives to gold right now," Edel Tully, an analyst at UBS AG in London, said in a report. Some variety of so-called quantitative easing in the U.S. "is becoming increasingly likely, and QE can't be ruled out in the U.K., Europe, Switzerland or Japan," she said.

In Europe, continued debt and growth worries continue to affect markets, with growing worries about France's exposure to peripheral euro zone nations. Speculation about the credit rating of the second largest euro zone economy has led to major stock selloffs in French banks. "Rumours are still swirling around France," said John Wraith, fixed income strategist, BofA Merrill Lynch Global Research. "All of the countries in the euro zone are getting dragged into this vortex as the situation gets worse in the periphery."

Disappointing economic data released on Friday showing that French economic growth was zero in the second quarter of 2011 increased the pressure on President Nicolas Sarkozy. This followed a 0.9 percent increase in growth in the first quarter.

"If you let Italy and Spain default, you will have 10 years of depression in Europe," said Matt King, global head of credit strategy at Citigroup. "Investors have gone well beyond the point where they believe a solution is just around the corner," said Moorad Choudhry, head of business treasury at Royal Bank of Scotland. He thinks that the reputation of sovereign bonds as an investment has been severely damaged by the financial crisis. "Right now people are shying away from what they previously thought were safe holdings, like euro holdings, and moving into safe havens territory," said Wraith at BofA Merrill Lynch.

(Sources: "Gold May Advance in New York as Slowing Economies Stoke Investor Demand," Bloomberg, August 12, 2011; "PRECIOUS-Gold extends dip from record as risk appetite firms," Reuters, August, 12, 2011; "Depression Decade in Europe If Italy Defaults: Analyst," CNBC, August 12, 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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