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Analysts See Buying Opportunity as Gold May Rally

Release Date: 
Tuesday, February 19, 2013

UBS commented, “this week…investors in China return with a strong desire to pick up metal at cheaper prices, with turnover on the [Shanghai Gold Exchange] surging to an all-time high.”  Physical buying in Asia supported gold in early trading after traders in China returned from a weeklong holiday, but a firmer dollar pressured the yellow metal.

According to some analysts, the current gold price may offer a value buying opportunity.  “It’s very cheap,” said David Lennox, resource analyst at Fat Prophets in Sydney. “The U.S. has still got to deal with budgetary and debt constraints, they’re not going to go away.  While that’s still there, we think there’s opportunity for gold to rally robustly.”

Michael Power, investment strategist at Investec Asset Management, said “the Western way of looking at gold is no longer correct…and indeed hasn’t been correct for many years. There are two other dimensions to gold of growing importance and, collectively, of more importance than investment – jewelry and central bank demand.”  China’s and India’s consumption of gold is now well over 50% of global mine production, he noted.

CD Funds Principal Willem Middelkoop commented, “there was a very interesting report published recently in Beijing, in China, January 11, by a think tank of central bankers, and they were very candid. They say, for example, ‘China may announce a rise in gold reserves as a result of accumulation over reasonably long periods at a time it makes sense for the Chinese authorities.

“This report states that it is the plan of the Chinese... actually they say the Chinese have a three-phase 10-year route map to make the yuan a full reserve currency. The Chinese want to make the yuan, besides the dollar and the euro, an international reserve currency. They have a plan for this, to build this in the next 10 years, and gold will be a central part of their strategy…Central banks have tried to get rid of gold totally out of this monetary system in the last 20 or 30 years but they failed miserably, and now the dollar is in crisis and the euro is in crisis - you see central banks also diversifying into gold. When investors see that even central banks are buying back gold again, they also start to accumulate gold. And this report from the central bank think tank states that this development will continue and central banks and private investors will keep accumulating gold. “

(“PRECIOUS-Gold inches up on Asia demand; firm dollar caps gains,” Reuters, February 19, 2013; “Gold futures inch further away from lows,” Bloomberg, February 19, 2013; “Gold futures inch further away from lows,” Marketwatch, February 19, 2013;  “Gold: Short term appearance versus long term reality,” Mineweb, February 18, 2013”)

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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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