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Devaluation of Currency
June 1, 2010

Are continuing euro-zone problems and geopolitical tensions strengthening the case for owning gold?

Currency Devaluation

'Gold posted its highest close in two weeks as investors sought the metal for protection against economic uncertainty after a report said European banks face sizeable write-offs.

Gold for August delivery on the Comex division of the New York Mercantile Exchange rose $11.90, or 1%, to $1,226.90 ounce, its loftiest settlement since May 17. Nearby June gold gained $12.60, or 1%, to $1,224.80.

Silver followed, with the July contract gaining 12.9 cents, or 0.7%, to $18.551 an ounce.

'You still have investors moving toward safe-haven assets like the dollar, yen, U.S. bonds and also gold,' said Carlos Sanchez, associate director of research with CPM Group in New York. 'There are ongoing concerns over euro-zone debt problems on the minds of many investors.'

The European Central Bank said Monday that euro-zone banks may have to write off loans totaling €195 billion ($240 billion) this year and next, adding to concerns that tighter credit markets could slow economic growth on the continent.

This comes on top of concerns about sovereign debt and the ability of some nations to reduce their deficits. Just ahead of the three-day U.S. Memorial Day weekend Friday, credit-rating firm Fitch downgraded the sovereign debt of Spain by one notch.

The euro fell to its lowest level in four years, adding to the strength in gold, said Leonard Kaplan, president of Prospector Asset Management in Chicago. This prompted buying out of Europe, in particular, he said. 'They're protecting themselves against the euro,' he said.

The European situation has many investors wanting to hold tangible assets such as gold, said Scott Meyers, senior trading analyst in New York with the Pioneer Futures division of MF Global. This trend may continue for the next few months, he said.

'There is going to be a conscious decision that investors have to make, whether it be interest rates or precious metals,' Mr. Meyers said. 'I think the actual ability to own something is going to come into play, as opposed to a portfolio.'

There are also some worries about the huge oil spill in the Gulf of Mexico eventually becoming a strain on the U.S. economy, he added.

Gold is often bought as a safety play against not only economic worries but also geopolitical tensions. The metal thus also remains underpinned by tensions between South and North Korea after Seoul accused the North of sinking a patrol ship in late March, Mr. Sanchez said. Further support occurred when Israel triggered a diplomatic crisis when commandos boarded a ship headed to the blockaded Gaza Strip early Monday, killing some pro-Palestinian activists.''

*This information is solely an excerpt of a third-party publication and is incomplete. Please subscribe to the referenced publication for the full article. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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