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Analysts See Buying Opportunity in Pullback

Release Date: 
Tuesday, September 27, 2011

Following the recent liquidation and correction, gold prices rallied more than 1 percent on the New York Spot Market in morning trading as a lower dollar helped precious metals rise.

Euro-zone officials are working to boost the region's rescue fund, European Central Bank policymakers said on Monday, increasing hopes the region will stabilize the debt crisis and avoid contagion to the global economy. The news pushed the dollar down 0.5 percent against a currency basket, making gold cheaper in foreign currencies. "As the structural problems of the USD reassert themselves we believe gold demand will improve and prices will recover," HSBC said in a research note.

Analysts at GFMS, Silver Arrow Capital Management, Credit Agricole, and UBS discussed how the current lower price levels are increasing demand in the precious metals markets and can be considered a buying opportunity."In the last couple of days the market over-reacted to the situation in the euro zone and the U.S.," said Cameron Alexander, senior metals analyst at GFMS. Gold's appeal as a safe-haven asset remains intact given the uncertainty in global growth and concerns about Europe's sovereign debt, and strong investment demand is likely to push gold towards $2,000 by the end of the year, said Alexander.

"When the market gets very panicky, they sell everything off and they go for cash and Treasuries because that's really the largest market where you can park your money," Gijsbert Groenewegen, a partner at Silver Arrow Capital Management, said. "It's a great opportunity to accumulate more gold and silver."

"Given that we haven't had any correction for months, this has brought better value to the market for people who want to get back into gold," said Credit Agricole analyst Robin Bhar, "I think gold's bottomed out here," he said. "Longer term, have all the factors that were bullish for gold really been addressed? Currency debasement, economic imbalances, sovereign debt -- the factors that were there last week are still here today."

"Although not many are yet prepared to dip their toes back in the market, there is a small but growing group who believe this pullback will prove to be a good buying opportunity," Edel Tully, a London-based analyst at UBS, wrote in a report.

Swiss bank UBS said it had seen very strong physical buying in Asia, particularly in India, the largest bullion consuming nation, on Monday. "To be clear, physical demand right now is not just decent, it is exceptionally strong," the bank said.

(Source: "PRECIOUS-Gold stages comeback with aid of weak dollar," Reuters, September 27, 2011; "PRECIOUS-Gold jumps 3 pct on physical buying, soft dollar," Reuters, September 27, 2011; "Gold Futures Advance As Biggest 3-Day Decline Since 1983 Spurs Purchases," Bloomberg, September 27, 2011)

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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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