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Analysts Comment on SandP Downgrade of France/Austria

Release Date: 
Monday, January 16, 2012

The price of gold moved slightly higher on Monday in steady trading on the New York Spot Market at $1644.00 per ounce at 6:30 a.m. Pacific Time with silver at $29.95 per ounce.

Standard & Poor’s downgraded the credit of nine euro zone countries on Friday, including France and Austria, which lost triple-A status. The news dragged the euro lower last week.

Societe Generale analysts said the European credit downgrades were expected and would not alter its outlook for zero growth in the euro-zone this year. Market attention will focus on upcoming European Union summits scheduled for late January and early March, the bank said. "The trigger for the [S&P] downgrade, was the failure of euro area policy makers to deliver a sufficient solution to date," Societe Generale analysts said in a note, adding that there would be little margin for failure in upcoming talks.

"There are a lot of risks still ahead of us and we don't think gold has priced in these risks," said Jeremy Friesen, commodity strategist at Societe Generale. "It (the downgrades) is one of the incremental pushes for gold to appreciate."

Scotia Capital managing director Sunil Kashyap said there seemed to be support for gold from regional Asian buyers on price dips. "Overall in Asia there is an appetite to buy gold at the right price," he said. More certainly on underlying demand was likely to emerge after January 15, he said, when a one-month period in which many buyers in southern India traditionally avoid the gold market lapsed.

Gold jewelry demand in India is estimated to have risen 5 to 7 percent in 2011 and is set to grow 10 to 15 percent in 2012, the head of India's largest jewelry retailer said on Sunday.

Gold miners expect the price of gold to continue climbing in 2012, according to a survey of gold companies by consultants PwC. Most respondents expect a peak around $2,000 an ounce, although responses ranged from $1,350 and $2,500. PwC said 80 percent of those surveyed expected the gold price to increase.

(Sources: "PRECIOUS-Gold steady after S&P downgrades; dollar pressures," Reuters, January 16, 2012; "Gold futures gain in Asian trading, " MarketWatch, January 16, 2012; "Miners see gold peaking around $2,000/oz in 2012-PwC," CNBC, January 16, 2012)

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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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