PRECIOUS METALS: Gold Climbs on Slower US Growth, EU Worries

Gold prices closed higher on Monday as renewed concerns about Europe and weaker economic data from the US. Gold prices have been rallying on weak US data in recent weeks and does hope that the Federal Reserve will pump more money into the economy.

By Tatyana Shumsky
June 25, 2012, 9:53 a.m. ET
Wall Street Journal

NEW YORK--Gold prices ticked higher Monday on renewed concerns about Europe and weaker economic data from the U.S.

The most actively traded contract, for August delivery, was recently up $5.70, or 0.4%, at $1,572.60 per troy ounce on the Comex division of the New York Mercantile Exchange.

Europe's government debt troubles were firmly in focus after Fitch Ratings cut Cyprus' government debt rating to BB+ from BBB-, stripping the country of an investment-grade rating. The ratings company said the country's bank sector required substantial capital injections that will force the government to seek a euro zone bailout.

European leaders are due to meet at a summit Thursday, though investors are growing increasingly skeptical of meaningful progress.

Across the Atlantic, the Federal Reserve Bank of Chicago's National Activity Index fell to -0.45 in May from a revised 0.08 in April, indicating that national economic activity had slipped again. A negative reading for the activity index, a compendium of available and forecast economic data, points to below-trend growth.

Gold prices have rallied on weaker U.S. economic data in recent weeks amid hopes that the Federal Reserve will pump more money into the economy. While the central bank disappointed investors last week, opting to restructure rather than expand its balance sheet, downbeat reports continue to stoke these hopes.

"Our economists see this as the Fed buying time and weighing future options, and continue to expect further accommodation before year-end," said Anne-Laure Tremblay, a precious metals analyst with BNP Paribas, in a note.

Analysts at Barclays note that lower gold and silver prices are drawing new buyers to the market. Gold bullion held at exchange-traded funds rose 1.2 metric tons on Friday, with total gold ETF holdings tracked by Barclays up just over 30 metric tons.

Physical silver-backed ETFs are also seeing an uplift, with silver ETFs ticking up 54.3 metric tons Friday and up 293 metric tons for the month of June, according to Barclays. So far, June is set to record the strongest inflows of silver since September, the bank said.

-Write to Tatyana Shumsky at tatyana.shumsky@dowjones.com

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