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Analysts See Gold Performing as a Safe Haven Asset

Release Date: 
Monday, May 21, 2012

The price of gold was slightly lower today on a weaker euro as concerns persist over Greek and Spanish debt. Gold was down $2.80 at 6:49 a.m. Pacific Time on the New York Spot Market, trading at $1,590.30 per ounce. Meanwhile spot silver was $0.51 lower, trading at $28.31 per ounce. (Click here for the most current spot prices.)

The head of commodity-markets strategy at BNP Paribas said, "in the past couple of days, gold has regained its safe haven appeal amidst all of the uncertainty we're seeing in Europe and the downgrades both to Spanish banks and Fitch's downgrade to Greek debt. I think in the correction that we've seen across many risky assets, we had a participation in gold as gold was liquidated to offset losses in those particular markets. So typically what happens is you have this kind of correction and gold falls only to regain its safe haven status afterwards."

Gold is "on a big upward trend...especially in the last couple of years," Tchilinguirian said. "We're looking at monetary accommodation...quantitative easing by the Fed, in the UK, even the Bank of Japan gold's appeal in that respect as an inflation hedge for that longer term trend in still in place."

Strategists at Capital Economics said the recent rebound in gold prices "suggests the metal may be finally regaining its appeal as a safe haven." The Australian financial newsletter The Privateer observed: "What is interesting about the snap-back this week - in both the physical and paper forms of gold, including gold stocks - is that gold has once again started to rise, while other asset markets (especially stock markets) are still falling."

Mitsui precious metals analyst David Jollie commented, "in the next few weeks leading up to the Greek election, there will be plenty of opportunities for people to worry about the European debt situation and the health of the euro in general. I think that will be positive for gold, certainly in the absence of foreign exchange movements."

Mike Harrowell, Senior Resources Analyst at BBY in Sydney, noted evidence of central bank gold purchasing with the yellow metal heading into a strong summer buying season. Gold prices may be supported by speculative money flows which are currently strong, he said. He also expects a large increase in physical gold demand from China this year.

(Source: "Gold bushwhacks bears," MarketWatch, May 21, 2012; "Gold edges higher as dollar softens," MarketWatch, May 21, 2012; "PRECIOUS-Gold retreats as softer euro curbs rebound," Reuters, May 21, 2012; "Where Are Gold Prices Headed?" CNBC, May 20, 2012; "Tchilinguirian Says Gold Will Turn Higher (Audio)," Bloomberg, May 18, 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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