Gold set to ride Portugal wave again

By @ibtimes on

Gold thrives on tragedies. And, it has proved once again that any economic crisis will help gold rise. This is the turn of Portugal, which is facing economic crisis like Greece.

As the news spread about Portugal's economic woes, gold prices surged on Monday and Tuesday.

On Wednesday market analysts said that the crisis in Portugal will further help gold to gain. Reason for this is that Bank of Portugal has predicted a fall in the country's growth in 2011.

The bank, however, has revised the Portuguese economy's forecasted growth in 2010 upward from 0.4 percent to 0.9 percent, but lowered its forecast for 2011 from 0.8 percent to 0.2 percent.

The central bank warns in the document that the Portuguese economy should suffer a strong slowdown in the second half of this year, which will be augmented in 2011 by austerity measures negatively affecting short-term growth.

The growth prospects of the Portuguese economy will be negatively affected in the short term by the necessary process of budget consolidation, the central bank states, highlighting that consumption and investment should retreat in real terms this year and next.

On the other hand, the Bank of Portugal indicates a likelihood of more than 50 per cent that the economy will enter in recession next year.

In this context, the central bank document asserts that there are risks of a new recession on the projection horizon, including the possibility that the euro may devalue more than expected this year and next, and that the need for adjustment in countries which are important destination markets for national exports may lead to falling demand addressed to Portuguese companies.

This news will definitely spread panic in global market and more safe haven deamand will come in for gold.

Additionally, the bank cautioned that a decreases in domestic demand as well as in private investment will dampen growth in 2011.

Domestic demand may decline 1.1% next year after remaining flat this year, the bank said. The slowdown in domestic demand may be driven by the government's fiscal consolidation measures, tight credit conditions, low household disposable income, and a weak labor market.

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