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US Prices Rise as Merkel-Sarkozy Talks Disappoint

Release Date: 
Wednesday, August 17, 2011

Gold prices moved higher on Wednesday as U.S. producer prices rose and talks between French President Nicolas Sarkozy and German Chancellor Angela Merkel offered no quick solutions to the euro zone debt crisis. The price of gold was $1793.10 per ounce at 7:37 a.m. Pacific Time on the New York Spot Market.

An index of producer prices gained 0.2 percent last month, the U.S. Labor Department said, twice the amount forecast by economists. The core measure, which excludes food and energy, climbed 0.4 percent, the highest since January. "The inflationary story is back," said Adam Klopfenstein, a senior market strategist at MF Global Holdings Ltd. "The weaker dollar is also helping gold."  The dollar fell as much as 0.7 percent against a basket of six currencies used in the Dollar Index.

German Chancellor Angela Merkel and French President Nicolas Sarkozy rejected an expansion of the euro region's rescue fund and were against calls for joint euro borrowing. The outcome of Tuesday's meeting between the leaders of Germany and France "was disappointing," analysts at Commerzbank said in a note to clients. "Even with the intention of creating a joint economic government for the euro zone, it will be difficult to translate the differing views of member states into convincing compromises. Uncertainty thus remains as to how the debt crisis will develop and this should keep the demand for gold as a safe haven high," Commerzbank said.

"Gold is still the most appealing asset in the short run, while uncertainty over the euro zone's future will not evaporate overnight," Andrey Kryuchenkov, an analyst at VTB Capital in London, said in a report.

"People are uncomfortable with what's happening in Europe and the United States," said Dick Poon, manager of precious metals at Heraeus in Hong Kong. He added that strong investment demand helped gold bar premiums in Hong Kong remain steady with reports from dealers in other parts of Asia on muted scrap sales and resilient investment interest.

(Sources:  "Gold Prices Gain for Third Day in N.Y. as Investors Demand Inflation Hedge," Bloomberg, August 17, 2011;  "Gold futures extend record run," MarketWatch, August 17, 2011; "PRECIOUS-Gold supported by euro zone debt concerns," Reuters, August, 17, 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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