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Gold Prices Rise on Greek Debt Concerns but US Inflation Threatens Gold’s Bullish Run

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Spot gold prices have been rising over the past week as a safe-haven play with the ongoing Greek debt crisis. Today's failure by the European finance ministers to come to an agreement for the release of the next batch of aid pushes the final decision out until July which may add to spot gold demand. However, traders should be eyeing the recent rise in US inflationary numbers which could support the US dollar and pressure spot gold prices in the medium-term.

Spot gold prices moved higher as a delay in additional Greek bailout loans had traders moving into safe haven assets such as the US dollar and gold bullion. After the first day of negations in Luxembourg European finance ministers neither were unable to come away with any concrete progress towards the release of additional loans for Greece to stave off a default nor were any steps taken for an increased to the previous bailout. Discussions have ranged for a new EUR 120 bn bailout fund to shore up Greek finances in 2012. The prolonging of bailout talks and a lack of a political solution to the Greek debt crisis may serve to boost demand for gold in the near term on a safe haven bid.

Looking more towards the medium term one risk to the bullish trend in spot gold prices is a rise in US inflationary pressures. This past week US inflation data slipped quietly under the radar due to the heightened tensions in in the euro zone. Data last week showed US CPI rose 3.6% y/y during the month of May. This stands in sharp contrast to the 2.7% increase in during the month of February. The Fed favorite core CPI also ticked up to 1.5% from 1.2% during the same three months which was above market expectations. The relatively heightened level of inflation may force the fed to readjust its outlook for the Fed Funds rate. Thus in turn would be a positive for the US dollar and a negative for spot gold prices.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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