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Analysts See Increasing Price and Demand for Gold

Release Date: 
Wednesday, June 15, 2011

Gold prices are expected to continue their eleven-year rally as investors seek a safe haven asset against currency debasement and inflation, according to India's Quantum Asset Management Co. India and China, the world's two largest gold consumers, reported faster inflation last month. India's wholesale inflation accelerated more than 9 percent in May from a year earlier. In China, consumer prices jumped 5.5 percent last month, the fastest pace in almost three years, according to the statistics bureau in Beijing.

"There has been a lot of discomfort amongst the retail public in terms of inflation," said Chirag Mehta, a commodity fund manager at Quantum. "Inflation has been persistently on the higher side." Daniel Major, analyst at RBS, said "Chinese and Indian inflation is underpinning what has been resilient physical metal demand so far this year."

"There will be more people moving towards the safety of gold which will take gold prices much higher," Mehta said. "The gradual increase in gold price will continue." Prices have advanced 7 percent this year so far.

"Even if a small fraction of financial assets move to gold, I think the price will go much higher than what it is currently," Mehta said yesterday. "The diversification to gold will continue, gold is still under-owned."

"There's a tidal wave of gold demand coming," Jason Toussaint, the World Gold Council's managing director of U.S. and Investment, said yesterday. "A key is the long-term fundamental change in emerging markets. The biggest markets of growth are China and India." Gold demand in India may increase to more than 1,200 tons by 2020 as economic growth boosts incomes and household savings, the council said on March 31.

"Euro zone - and perhaps soon U.S. - sovereign debt concerns remain critical, there is a lot of liquidity still and China's growing middle class can't get enough of the yellow metal," said David Thurtell, the analyst at Citi. "Investors want to avoid the dollar, euro and yen. It doesn't leave much, especially if you can't access the yuan."

(Sources: "Gold to Extend Gains as Buyers Seek ‘Safety' Against Inflation, Fund Says,"Bloomberg, June 15, 2011; "Gold Slips Near $1,517 on Stronger Dollar," CNBC, June 15)

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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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