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Gold Rallies on Hopes for Lower Rates from ECB

July 4, 2012 at 0:11 by Vladimir Vyun

Gold jumped yesterday and extended its rally today as traders hope that the European Central Bank would cut its interest rates. The general perception is that lower borrowing costs should boost the eurozone economy. The European Union is a huge market and many export-oriented economies depend on it. Any positive developments in the EU would be good to commodities.

The truth is that the potential rate cut may be not particularly good for commodity prices. Lower lending rates would likely bring the euro down, boosting the dollar at the same time. That would be negative for raw materials. Of course, there are hopes that the Federal Reserve would ease its monetary policy too. But the policy meeting of the Fed will be held much later, while the ECB will announce its policy decision on July 5.

Gold rose from $1,616.40 to $1,618.40 per ounce today on COMEX. The metal leaped from $1,595.90 to $1,615.70 yesterday.

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