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Weaker Dollar on European Debt Optimism Helps Gold

Release Date: 
Monday, October 17, 2011

Gold prices rose to a three-week high after a G20 summit boosted hopes that European leaders might soon resolve the region's debt crisis. The euro hit a one-month high against the dollar as ahead of a European Union summit scheduled on October 23. 

Still, German Chancellor Angela Merkel's spokesman said Europe's leaders won't provide the quick resolution to the region's debt crisis that global policy makers are pushing for at an Oct. 23 summit. Tom Pawlicki, an analyst at MF Global Holdings Ltd. In Chicago, commented, "we are seeing some flight to quality here."

 "Too much uncertainty remains in the market with questions over issues such as guarantees of European sovereign debt, a Greek default and debt sustainability," Edel Tully, the London-based analyst at UBS AG, wrote today in a report.  

Gold gained on optimism following news that U.S. consumers spent more than expected in September. "The bulls are in control when it comes to gold," said Matt Zeman, senior market strategist with Kingsview Financial in Chicago. Recent bouts of volatility due to an "overbought" market appeared to be over, he said. "The market is trading a lot more rationally now." Gold is likely to remain supported as the sovereign-debt crisis in Europe, despite recent signs of optimism, remains far from over, he added.

Gold is expected to see support from increased physical buying in Asia as it continues to respond to the euro zone debt crisis. "We remain bullish...and believe that investors should be adding gold at current levels," said Morgan Stanley in a report.

(Sources: "Gold Climbs to Three-Week High as Europe's Debt Crisis Spurs Haven Demand,"Bloomberg, October 17, 2011; "Gold motors to three-week high," Reuters, October 17, 2011; "Spot Gold Higher, Expected To Extend Gains," Wall Street Journal, October 17, 2011; "Gold, other metals rally on surging retail sales," MarketWatch, October 14, 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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