LONDON -(Dow Jones)- Spot gold rose in European trading Tuesday amid safe-haven buying as investors continued to worry that the European Union debt crisis and ailing U.S. economic growth could drag down global economic growth.
Analysts and traders said the yellow metal is beginning to resume its upward trend as concerns abound that U.S. and EU debt woes will lower economic growth prospects in those regions and elsewhere. However, gold prices
could still fall if equities remain weak and investors need to
liquidate their assets in order to cover margin calls, they said.
At 1109 GMT, gold was up 0.5% at $1,668.10 a troy ounce while the U.K.'s FTSE-100 stock index was down 2.7%.
Financial markets
were under renewed strain after finance ministers from the 17-nation
euro area further delayed a decision on disbursing Greece's next round
of aid to November and indicated private bondholders may have to suffer
bigger losses on debt as part of the second Greek rescue plan approved
in July.
A raft of banks and trading
agencies have cut their global economic growth forecasts over the past
two days due to concerns that politicians will fail to coordinate a
coherent policy to tackle the EU debt crisis and U.S. debt woes.
"Given the continued lack of policy direction in Europe, the
short-term risks remain firmly to the downside, with [commodity] prices
likely to remain highly volatile," Credit Suisse said in a note. Goldman Sachs, Standard and Poors and Fitch Ratings all downgraded their global economic growth forecasts over the past two days.
Goldman Sachs said in a report that investors should take long trading positions in gold.
"We expect gold prices
to continue to climb in 2011 given the current low level of U.S. real
interest rates. Further, with our U.S. economics team now forecasting
slower U.S. economic growth in 2011 and 2012, we expect U.S. real
interest rates to remain lower for longer, supporting higher gold prices
through 2012."
Goldman Sachs has a 12-month gold forecast of $1,860/oz.
Elsewhere in the precious metals complex, platinum was down 1.1% at
$1,480.25/oz while palladium was up 1.4% at $587.20/oz and silver was up
1.4% at $30.79/oz.
Credit Suisse said both platinum and palladium will be influenced by speculative investment flows
in the short term but noted that prices should "move materially higher
during 2012" as economic growth stabilizes and stricter environmental
legislation prompts more demand for auto catalysts used in cars.
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