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Analysts Say Gold Will Perform on Inflation Expectations

Release Date: 
Monday, August 27, 2012

The price of gold was slightly lower after reaching four-month highs yesterday. Gold was $1.70 lower at 7:55 a.m. Pacific Time on the New York Spot Market, trading at $1,670.40 per ounce.  Spot silver was $.14 higher, trading at $30.82 per ounce.  (Click here for the most current spot prices.)

Gold demand may climb as a bet against inflation, a survey showed. The precious metal may reach $1,800 per ounce by the year-end, or a 15% annual gain, according to the median forecast in a Bloomberg survey of 15 traders and analysts.

“A lot of the speculative froth has come out of the gold market already, so it makes gold ready to resume its uptrend,” said Nader Naeimi, Senior Investment Strategist at AMP Capital. Mr. Naeimi believes demand will rise along with higher gold prices. “We are in an environment where you still have a tight fiscal situation in the developed world and very loose monetary policy…real interest rates will remain quite low. So from a financial point of view real demand will be there. As inflation expectations pick up, we will see more demand for gold.”

The Pimco Commodity Real Return Strategy Fund has increased its gold holdings as a hedge against inflation, anticipating further moves by central banks to spur economic growth, said fund manager Nic Johnson. The $20 billion fund increased its gold holdings to 11.5 percent of total assets from 10.5 percent two months ago. “We see higher inflation because of rising commodity prices, unconventional monetary policies and increasing sovereign debt…Gold is the currency without a printing press… We think the outlook for commodities is still positive and we think we're still in the midst of this super cycle," he noted, adding that commodity prices are set to rise for another decade.

Michael Fowler, senior mining analyst with Loewen, Ondaatje, McCutcheon Ltd., said “coming into 2013, I'm looking for a $2,000 per ounce gold price...”

(Sources: “Gold Set For Best Year Since 2010 As Stimulus Bets Increase,” Reuters, August 27, 2012;  “Gold to Continue Uptrend,” CNBC, August 22, 2012; “Pimco Fund Expands Gold Holding On Outlook For Inflation,” Bloomberg, August 22, 2012; Expect junior and midtier gold stocks kickstart with $2,000 gold - coming soon,” Mineweb, August 19, 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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