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Analysts Discuss Central Bank Buying and Policy

Release Date: 
Friday, March 16, 2012

Gold moved lower today as investors continued to digest this week's economic news showing a more positive outlook for the U.S. economy. The dollar traded higher against the euro. Gold was priced at $1655.20 per ounce at 7:11 a.m. Pacific Time on the New York Spot Market with silver at $32.70 per ounce. Yesterday, the gold price had moved 1% higher on a combination of bargain hunting and a weaker dollar.

In addition to opportunistic buying, analysts continue to note the economic realities that may help support gold prices. "Gold is due for a bounce," said Adrian Day, the president of Adrian Day Asset Management in Annapolis, MD. "Given the massive monetary easing by central banks around the world this is a good environment for gold."

According to Nick Moore, head of commodity research at Royal Bank of Scotland Group Plc, the recent price pullback may encourage central banks to add gold to their reserves. World Gold Council statistics indicate central banks bought 439.7 tons of gold last year, the most in almost five decades, with a similar amount expected in 2012.

Analysts at Barclays Capital noted that "the broader macro backdrop remains favorable for gold, given the negative interest rate environment, longer-term inflationary concerns and lingering sovereign debt uncertainties."

Physical gold dealers in India noted panic buying of the precious metal in the country, the world's largest gold importer, after Finance Minister Pranab Mukherjee proposed doubling the customs duty on gold beginning in April.

(Source: "Gold pulls back in European trading,"  MarketWatch, March 16, 2012; "PRECIOUS-Gold gives up early gains on India's import duty hike plan," Reuters, March 16, 2012; "Gold Bulls Weakest in Two Months as Economy Gains: Commodities," Bloomberg, March 16, 2012)

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