Gold Advances on Europe Debt Concerns, Cutting Weekly Loss

on Jun 20, 2012
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On 22 June 2012, Bloomberg reported that gold was set to gain for the first time in five days in New York, as fears about the financial situation in Europe spurred demand for the protection of wealth it is perceived to offer. Gold for August delivery was up by 0.3 percent to $1,570.10 an ounce by 7:59 a.m. on the Comex in New York, whereas in London, bullion for immediate delivery rose 0.2 percent reaching $1,569.83.

This slight price improvement marks the end of a rather difficult week for gold, with the price going down 3.6 percent during the week, the most since May 11. Silver and platinum followed this downtrend as well, dropping 4.5 and 0.7 percent respectively.
!m[](/uploads/story/163/thumbs/pic1_inline.png)The reason for the sluggish gold prices of late was the decision of the US Federal Reserve to simply extend Operation Twist – an economic stimulus plan for selling short-term bonds while purchasing long-term securities. Yet, the Fed refrained from a more aggressive plan to ease monetary policy, as reported by the Financial Times.

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The Fed decision affected the performance of other commodities as well, with Bloomberg reporting that the Standard & Poor’s GSCI Spot Index of 24 raw materials slumped 22 percent from this year’s highest close, entering a bear market.
Even though the extension of Operation Twist was not enough so as to have a positive impact on gold prices, concerns about Europe’s debt crisis have managed to increase demand for the metal as a hedge. As reported by Bloomberg, data revealed that German business confidence fell to a two-year low in June, while Spain’s 10-year borrowing costs rose above the 7-percent level, which prompted Greece, Ireland and Portugal to seek international rescue funds. Bloomberg quotes Jim Pogoda, an investor at Summit, New Jersey, who noted in an e-mail that gold was likely to attract some “safe haven investment”, with focus shifting back to the debt troubles in Europe.

And while investors seem to be disappointed with the current measures announced by the Fed, further indications for slowed US economic growth might at some point prompt the Fed to take a more aggressive approach such as the adoption of a new round of quantitative easing. Naturally, such a development is likely to benefit gold prices. As noted in the FT article, the Fed’s Chairman Ben Bernanke pointed out that the US central bank was ready to further ease monetary policy if needed. “Additional asset purchases would be among the things that we would certainly consider if we need to take additional measures to strengthen the economy,” he said.

According to Bloomberg, separate reports indicated that more Americans than expected filed claims for unemployment benefits, that manufacturing in the Philadelphia region shrank in June in the fastest pace in almost a year, and that sales of existing homes fell in May. It remains to be seen if and how the Fed will address these additional signs of a slowed US economic recovery.

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