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Analysts See Currency Devaluation Adding to Gold’s Luster

Release Date: 
Friday, January 11, 2013

The price of gold fell as the dollar strengthened.  Gold was $15.00 lower at 8:01 a.m. Pacific Time on the New York Spot Market, trading at $1,660.80 per ounce.  Spot silver was $0.50 lower at $30.46 per ounce.  (Click here for the most current spot prices.)

Several analysts have noted that currency debasement may affect future gold prices. “If the currency devaluation race persists, gold is likely to remain in demand as an alternative currency,” analysts at Commerzbank stated in a research note. “We therefore believe that the latest weakness in the gold price will not be lasting, and expect to see noticeably higher gold prices in the second half of the year at the latest.”

Blackstone Advisory Partners Vice Chairman Byron Wien said the price of gold may reach $1,900 per ounce during 2013 “as central bankers everywhere continue to debase their currencies and the financial markets prove treacherous.”  He also predicted that the S&P 500 Index could drop 10 percent from current levels before recovering to end flat for 2013.

Marc Faber, managing director, editor and publisher of "The Gloom Boom & Doom Report," said he purchases gold every month and will continue to do so.  “I will never sell my gold in my life,” Faber said. “I just think that government will print money and that there will be competitive devaluation, and so I want to have gold as an insurance policy.”

"The economic environment around the world and in the U.S. is still quite poor," TD Securities (TDS) said in a research note.  The U.S. faces some "very challenging negotiations" between President Obama and the House of Representatives over the debt ceiling, which could mean a fiscal drag in the coming months, the firm said.

This fiscal drag, added to potential spending cuts from Congress, may cause the economy to underperform expectations, according to TDS. This could reduce the probability the Fed will tighten monetary policy sooner, rather than later—reducing yield and lifting gold, TDS said.

(Sources: “Gold price ease as dollar moves higher,” Marketwatch, January 11, 2013; “PRECIOUS - Gold slips as stocks ease, dollar regains footing,” Reuters, January 11, 2013; “Marc Faber: Why I'll 'Never' Sell Gold,” CNBC, January 10, 2013; “US Stocks Could See a Correction: Wien,” CNBC, January 9, 2013; “Faber: Gold As 'Insurance Policy,’” CNBC, January 8, 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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