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Analysts Comment on Factors Affecting Gold Price

Release Date: 
Tuesday, December 13, 2011

Gold prices moved higher today following negative comments from ratings agencies Fitch and Moody's on last week's European Union summit. Gold traded at $1674.80 per ounce and silver at $31.85 per ounce on the New York Spot Market as of 6:52 a.m. Pacific Time.

Analysts commented on several of the factors that led to the recent drop in gold prices. "The price slide comes partly on the back of a very firm U.S. dollar," wrote Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt. "…We are still convinced that gold can serve mid- and long-term as a store of value."

With investment managers needing to cover potential redemptions at year-end, the need for liquidity may also be affecting gold prices. According to Charles Nedoss, senior market strategist with Olympus Futures,  "you will see people come back to gold—the selling right now is to raise capital."

"This pullback finally encouraged a response from the physical community," wrote Edel Tully, analyst at UBS in London, in a report. The bank's physical gold flows to India yesterday were the most since Oct. 20, UBS said. "Market participants are placing a lot of importance on physical buyers to step in," according to Tully.

"The bigger macro issues are still there, which would generally be supportive for gold," explained Citi analyst David Wilson, "but right now it's all about the noise around the continued political failure in Europe."

(Sources: "PRECIOUS-Gold lifts off lows, vulnerable to Europe anxiety," Reuters, December 13, 2011); "Gold Drops to a Seven-Week Low," Wall Street Journal, December 13, 2011; "Gold May Gain in New York After a Slide to a Seven-Week Low Spurs Buying," Bloomberg, December 13, 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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