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Analysts Comment on Gold's Upward Direction

Release Date: 
Wednesday, June 8, 2011

Gold markets saw profit taking on Wednesday morning after metals reached a one-month high, but analysts see strong price support and expect gold to perform well in the medium and long term. Analysts at VM Group, National Australia Bank, MKS Finance SA, Shanghai CIFCO Futures and Credit Suisse commented on several factors that are influencing their expectations for gold prices.

Federal Reserve Chairman Ben S. Bernanke yesterday said the "frustratingly slow" U.S. recovery warrants sustained monetary stimulus while predicting that growth will gain speed in the second half of the year.

"Gold still has more tailwinds that headwinds," said VM Group analyst Carl Firman. "It is very doubtful now that the United States will be raising interest rates over the next 12 months, which means the negative interest rate environment in the U.S. is going to stay." The analyst added, "that will leave investors looking for higher returns elsewhere, and gold is one beneficiary of that."

An increasing number of politicians said a U.S. debt default might be an acceptable price to pay if it forces the White House to deal with runaway spending. "This has significant downside risks for industrial raw material, and is highly positive for precious metals. It has dire implications for the economy at a time when the macro data is softening," said Ben Westmore, commodities economist at National Australia Bank.

"The situation in the U.S. and Europe continues to not be very promising," said Afshin Nabavi, a senior vice president at MKS Finance SA, a bullion refiner in Geneva. We're heading for much higher prices in the medium term. We just need a trigger." Gold prices do "not have much room on the downside," said Li Ning, an analyst at Shanghai CIFCO Futures.

"Gold could see fresh interest if the ECB signals to keep rates on hold as precious metals benefit from a low interest rate environment," Stefan Graber, an analyst at Credit Suisse Group AG, wrote in a report. "The overall direction of gold remains firmly up."

(Sources: "Gold Slips Near $1,534 After Bernanke Speech,"CNBC, June 8, 2011; "Gold Falls as Some Investors Sell Following Advance to Near Record Price," Bloomberg, June 8, 2011; "PRECIOUS-Gold steady, market seeks clues on U.S. policy move," Reuters, June 8, 2011)

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