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Analyst Sees Further Upside for Gold

Release Date: 
Friday, July 15, 2011

The price of gold has risen for the past eight days, the longest streak of gains since April. Sentiment remains bullish with twenty-four of tweny-seven traders, investors and analysts surveyed by Bloomberg, or 89 percent, saying gold will rise next week. Gold prices have risen 11 percent this year after 10 years of consecutive gains, the longest run in at least nine decades. Prices are up 2.7 percent this week alone.

An analyst at Tyche Group sees a major upside for the price of gold while others at Standard Chartered, UBS and ANZ cite continued factors supporting gold in the current environment. Martin Hennecke, associate director at Tyche Group in Hong Kong, said the unraveling debt crises in the U.S. and Europe are driving safe-haven demand for precious metals. “The sovereign-debt crisis is only starting to get underway. The major countries, Germany, France, the U.K. and US haven’t even been hit yet,” he said. “There is major upside for gold yet to come.”

“The crisis is centered in sovereign currencies and bonds, and therefore people see commodities as a safe haven, because they are inflation-proof,” Hennecke said. Rising Asian — particularly Chinese — demand, combined with supply difficulties are adding upside to gold, he added.

Gold has also seen support from the possibility of further monetary easing from the U.S. Fed. "We're of the view that the U.S. doesn't need (further monetary easing), that U.S. growth will accelerate and that QE3 won't be needed," said Dan Smith, analyst at Standard Chartered. "Strong demand growth in Asia, high inflation in Asia and a dollar under pressure will support gold in the medium term."

“Given all the uncertainty in the market with the European debt crisis and more recently the U.S., the risk-off sentiment will continue,” said Natalie Robertson, an analyst at AustraliaandNew Zealand Banking Group Ltd. (ANZ).

Edel Tully, a London-based analyst at UBS, commented, “the overall macroeconomic climate is very supportive of gold.”

(Sources: “Gold, silver pull back in electronic trading,” MarketWatch, July 15, 2011; “Gold Falls in New York Trading as Rally to a Record Spurs Investor Sales,” Bloomberg, July 15, 2011; “Gold Undermined by Bernanke, Firm Dollar,” CNBC, July 15, 2011)

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†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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