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Analysts: Physical Demand Still Strong for Gold

Release Date: 
Friday, April 13, 2012

Gold markets moved lower on Friday as the dollar rose against a basket of currencies and European debt concerns drove the euro lower. The metal traded at $1669.00 per ounce at 7:11 AM Pacific Time on the New York Spot Market with silver at $32.15 per ounce.

Despite today's price weakness, several analysts still forecast higher prices ahead. Physical demand for gold has been supporting the precious metal, "...with particularly strong buying coming out of the Far East on price dips," said analysts at Standard Bank.

"The latest Chinese foreign exchange reserves data [also] showed a much stronger-than-expected increase in March...Chinese monetary easing looks to have already taken place," the bank noted. "Reserve accumulation and continued low real interest rates underscores our long-term bullish outlook for gold."

"Gold [in 2011] was clearly dependent on emerging markets' economic strength, as China's jewelry demand grew to a record level while India's fell by less than 3%," said Philip Klapwijk, global head of analytics for Thomson Reuters GFMS, on Wednesday as he launched the consultancy's new Gold Survey 2012.

Rising incomes in both China and India mean "we see significant potential for new entrants" to the gold market, said Klapwijk, with banks expanding access to physical product in-branch, and private-sector operators also expanding "distribution to retail investors."

"Negative real rates of interest and quantitative easing can only be good for gold," he explained, forecasting a continuation of US and UK policy into 2012, and increasingly loose monetary policy in Europe. Klapwijk predicts that gold may break $1900 per ounce and push near the $2,000 level in 2012.

Whether in North America, Europe or emerging Asia, people are choosing to buy gold "as a form of protection against debt monetization and inflation," Klapwijk said. Demand for gold is increasing as more investors are using the metal to preserve capital in their portfolios, Juan Carlos Artigas, a manager of investment research at the World Gold Council, said at a conference in New York.

 (Source: "Gold Becoming Foundation Asset in Portfolios, WGC's Artigas Says," Bloomberg, April 13, 2012; "Gold eases towards $1,670/oz as dollar recovers," Reuters, April 13, 2012; "Far East traders ‘buying the dips' in gold, China ‘already easing' monetary policy," MineWeb, April 12, 2012; "Gold inches lower, gives back previous gains," MarketWatch, April 11, 2012)

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