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Gold price rises to near three-week high

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Gold firmed to its highest in nearly three weeks on Wednesday as growing fears about Portugal’s debt pummeled the euro, sending bullion priced in the single currency to a record high.

Standard & Poor’s threatened to cut the credit ratings of Portugal, citing uncertainties stemming from the risk of the country having to seek international financial aid — just after Ireland secured an 85 billion euro bailout package from the European Union.

Spot gold rose as high as $1,392.75 an ounce, its highest since Nov 12, and was at $1,392.05 an ounce by 0535 GMT, up $7.11. Bullion was still below a lifetime high around $1,424 struck in early November.

BNP Paribas hiked its 2011 gold price forecast by 20 percent, saying a number of factors — uncertainty on the role of the dollar within the international monetary system, concerns on the stability of peripheral euro zone countries and growing inflationary pressures in Asia — supported an upward trend.

“Consequently, we have raised our 2011 gold price forecast to $1,500 an ounce from $1,245 an ounce previously. If we see the gold rally extending in 2012, it will however take place at a more moderate pace. We expect gold to average around 1,600 an ounce in 2012,” BNP Paribas said in a report.

Gold priced in euro rallied to a record at 1,070.11 euros an ounce. U.S. gold February futures rose $7.4 to $1,393.5 an ounce.

Spot gold is expected to extend its gain to $1,403 per ounce, as per its wave pattern and a Fibonacci projection analysis, according to Wang Tao, a Reuters market analyst for commodities and energy technicals.

The euro struggled across the board on Wednesday, stuck near 11-week lows against the dollar as the market waited to see what European policymakers would do next to try to contain worries about euro zone debt.

There are growing worries that other debt-ridden euro zone countries such as Portugal and Spain will also need aid. The Portuguese prime minister said the country was not facing any pressure to ask for a bailout and did not need any such help.

“We’ve seen buying on dips on the physical side but toward year-end, I guess people will also book profits. I think people are still watching the developments in Europe and also Korea,” said a dealer in Hong Kong.

“Is Europe going to print more money to rescue the economy? Is China going to increase the interest rates? Let’s see how it’s going to impact the market,” he added.

Some dealers said there was a bit of safe-haven buying related to the conflict in the Korean peninsula, while others believed investors paid more attention to the debt crisis in Europe and worries about interest rate hike in China.

China’s factories revved up production in November, but a big jump in input prices pointed to more inflationary pressure in the pipeline and a need for more monetary tightening.

South Korea plans more military drills after U.S. warships leave on Wednesday, Yonhap news agency said, a move likely to add to tension on the divided peninsula after last week’s attack by the North.

In equities, Japan’s Nikkei share average was flat on Wednesday, after falling nearly 2 percent the previous day when China stocks tumbled on a liquidity squeeze. U.S. shares fell in a choppy session on Tuesday on Portugal fears.
Source: Reuters

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