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Fitch Downgrades Italy, Increases Demand for Gold as Haven

March 12, 2013 at 3:12 by Vladimir Vyun

Gold rallied today as concerns about the future of the European economy returned, increasing the appeal of the precious metal as a safe haven. One of the reasons for such worries was the downgrade of Italy’s credit rating by Fitch Ratings. Fitch cut the country’s long-term rate from A- to BBB+, explaining the decision by the following reasons (among others):

The inconclusive results of the Italian parliamentary elections on 24–25 February make it unlikely that a stable new government can be formed in the next few weeks. The increased political uncertainty and non-conducive backdrop for further structural reform measures constitute a further adverse shock to the real economy amidst the deep recession.

 Q412 data confirms that the ongoing recession in Italy is one of the deepest in Europe.

The rally followed last week’s advance after positive US nonfarm payrolls. Some analysts believe that the good employment data limited gains of the metal by reducing need for safety. Perhaps, it is too early to become overly bullish on gold, but it certainly looks like the metal has bottomed out.

April futures for gold advanced $2.90 (0.31 percent) to $1,582.70 as of 3:08 GMT on COMEX today.

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