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Analysts See Demand for Gold as a Safe Haven Asset

Release Date: 
Tuesday, May 29, 2012

Gold moved higher today despite a lower euro which fell to near two-year lows on continued concerns over the Spanish economy and the upcoming Greek election. The yellow metal also saw support from pessimistic U.S. consumer confidence data. Gold was $5.30 higher at 7:46 a.m. Pacific Time on the New York Spot Market, trading at $1,580.00 per ounce. Spot silver was $0.18 higher, trading at $28.71 per ounce. (Click here for the most current spot prices.)

U.S. consumer confidence declined for a third month, according to the Conference Board falling to 64.9 in May-the lowest level since January. Economists expected the index to reach 70 in May.

"If Spain ended up seeking an international bailout, it would trigger more panic than Greece," said Li Ning, an analyst at Shanghai CIFCO Futures. "Gold will be in a critical position at least until the Greek general election taking place on June 17," said Peter Fertig, a consultant at Quantitative Commodity Research. "Should there be a majority for a government led by the conservative New Democracy, chances are quite good that gold would rebound," he said. "That would also support the euro, it would support stock markets."

Societe Generale analyst Robin Bhar said that in the near term, gold is vulnerable to shifts in economic sentiment, but the metal can regain its safe-haven status following major risk-off events. Bhar cited gold's correction and recovery following Lehman Brothers' collapse in September 2008 as an example of its ability to reclaim its status as a safe haven asset. Prices saw a rapid increase on safe-haven asset purchasing following Lehman's collapse, then a period of liquidation on cross asset class liquidation before resuming the uptrend in December 2008.

OCBC Commodities Analyst Barnabas Gan said the bank believes gold prices will rise in the second half, spurred by safe-haven demand. "We're still looking at a $1,800/oz price for the end of the year...which would indicate that the safe-haven trade has returned," he said, citing a potential third round of U.S. quantitative easing as the "game changer" in the way investors view gold. "If there's another round of QE, we may see stronger interest in gold as a preferred safe-haven asset in contrast to the dollar," he said.

(Source: "Gold Poised to Regain Safe-Haven Status," The Wall Street Journal, May 29, 2012; "PRECIOUS-Gold inches up on weaker dollar; Spain worry weighs," Reuters, May 29, 2012; "PRECIOUS-Gold retreats as euro surrenders early gains," Reuters, May 29, 2012; "Gold up over $10, gains for a third session," MarketWatch, May 29, 2012)

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