NEW YEAR, WEDDINGS IN CHINA AND INDIA BOOST DEMAND

January 10, 2012

The price of gold rose more than $22 in trading on the New York Spot Market with gold at $1635.60 per ounce at 6:31 a.m. Pacific Time and silver at $30.16 per ounce. Expectations for increased physical demand from Asia, a lower dollar and monetary policy in Europe supported the higher prices.

Buyers in India, the world's largest gold-consuming nation, engaged in opportunistic buying on a price dip last week to stock up ahead of the wedding season beginning later this month, according to gold dealers in India. "Buying will continue until March," said Harshad Ajmera, a retail proprietor in Kolkata. Indian demand for gold may also increase as policy makers attempt to slow inflation, RBS Capital Markets said in a report.

The dollar fell against the euro today. "I would expect that weaker dollar, stronger gold relationship to drive the market for the year," said Macquarie analyst Hayden Atkins. "A big part of the weakness into the end of (last) year was people taking profits and liquidity being a bit lower," he said. "I would expect that to unwind ..."

Analysts surveyed by Bloomberg expect that the European Central Bank (ECB) is likely to keep its benchmark rate at 1 percent on Jan. 12. The ECB cut the rate to 1 percent in December, in addition to other efforts to boost liquidity. "Even though the market expects no changes to the benchmark rate, some still anticipate the central bank embarking on further policy easing," said Andrey Kryuchenkov, an analyst at VTB Capital in London. "Either way, we continue in an ultra-low currency yield environment which is gold beneficial, with little change in the near future for major central banks."

Gift purchasing ahead of the week-long New Year holiday in Asia beginning Jan. 23 is expected to boost gold demand in China, Taiwan, Hong Kong, Vietnam and Thailand, according to U.S. Global Investors Inc. "Physical investment and jewelry demand has been strong into price falls below $1,650, with Chinese buyers particularly active," said Nick Moore, an analyst at Royal Bank of Scotland Group Plc, in a report today. Demand from China "is likely to increase this month irrespective of price, in the run-up to the Chinese New Year Holiday."

(Sources: "PRECIOUS-Gold, precious metals rally as dollar slips," Reuters, January 10, 2012; "Gold Rises on Speculation Demand Is Strengthening, Easing by Central Banks," Bloomberg, January 10, 2012)

†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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