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UBS: High Oil Prices Slow Growth But Help Gold

Release Date: 
Wednesday, February 29, 2012

Gold and silver moved higher on Monday as analysts noted positive factors for the precious metal such as higher oil prices. Gold traded at $1774.90 per ounce at 7:14 a.m. Pacific Time on the New York Spot Market with silver at $35.51 per ounce.

In a meeting of G-20 finance ministers and central bankers, euro zone nations were told to contribute additional money to fight their debt crises if they wanted assistance from other countries. "There is a softer turn across commodities after the G20 added to the risk anxiety," said Nick Trevethan, senior commodity strategist at ANZ in Singapore. "Gold failed to break the $1,780 resistance last week and is likely to bounce between $1,760 and $1,780, but the eventual breakout will be towards the upside."

Oil prices rose as MidEast tensions continued over Iran's nuclear program and the potential for disruptions from the unstable political situation. Rising oil prices near 10-month highs could send gold prices "much higher" as higher energy costs are likely to slow global growth, according to UBS. "In addition to geopolitical risk premium and the impact of elevated oil prices on inflation expectations, the potential for expensive oil to put a drag on global growth also has upside implications for gold," explained UBS London-based analyst Edel Tully in a research report.

(Sources:  "Rising Oil Prices Could Send Gold "Much Higher," UBS Says," Bloomberg, February 27, 2012;"PRECIOUS-Gold slips as Europe concerns linger; oil supportive," Reuters, February 27, 2012; "Gold pulls back on extended profit-taking," MarketWatch, February 27, 2012)

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