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The Daily Reckoning

Jitters over sovereign debt: Is it time to buy gold?

Some 73 percent of traders believe worries over sovereign debt default may boost the price of gold, a new survey says.

By Rocky VegaGuest blogger / March 7, 2010

A golden tiger of fortune was on sale at the Beijing Jewelry Exhibition in November. Many traders think that worries about sovereign debt default in Greece or other European countries could boost the price of gold.

A Qing/ChinaFotoPress/Newscom/File

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It’s almost never a good idea to follow a crowd, but it’s certainly wise to be aware of where it’s headed.

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The Daily Reckoning

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In today’s case, a Bloomberg survey has shown that some 73 percent of surveyed traders believe that sovereign debt problems in Europe may serve to boost the price of gold. More below…

According to BusinessWeek:

“Nineteen of 26 traders, investors and analysts surveyed by Bloomberg, or 73 percent, said bullion would rise next week. Six forecast lower prices and one was neutral. Gold for delivery in April was up 1.1 percent for this week at $1,131 an ounce at 11:30 a.m. in New York yesterday.

“Demonstrators in Greece, which is struggling to narrow a budget deficit, blocked streets in Athens yesterday to protest austerity measures. Fellow euro-zone members Spain, Portugal and Ireland also face budget gaps. Gold rose to a six-week high of $1,145.80 on March 3 as holdings in the SPDR Gold Trust, the largest bullion-backed ETF, gained to the highest level in seven weeks.

“’The growing issue of sovereign debt continues to draw investment demand into the market,’ James Moore, an analyst at TheBullionDesk.com in London, said in an e-mailed statement.”

The contrarian play would be to bet against the crowd and for some downward pressure on gold prices.

There’s certainly a case for that strategy, relative to sovereign debt, in light of the measures that Greece seems to be aggressively developing (for the time being).

Still, the traders may be right in the short run, which is rarely going to be straightforward to predict. Gold may have some additional room to gain in value as the inevitable wrinkles in the austerity plan get ironed out, publicly and tumultuously.

Regardless of how you choose to interpret the data, you can review the full details on how gold may gain on concern about sovereign debts at BusinessWeek.

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