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Analysts See Long Term Structural Support for Gold

Release Date: 
Monday, March 12, 2012

The price of gold moved lower as the euro fell on lingering uncertainty over the Greek economic recovery and diminished expectations for a fresh round of quantitative easing in the U.S. Gold was trading at $1,698.10 per ounce at 7:19 a.m. Pacific Time on the New York Spot Market with silver at $33.73 per ounce.

Phil Streible, Sr., commodities broker at RJO Futures, said "on Friday, we saw a large spike of the oil market on increased military activity over in Iran. Every time we've seen that, we've seen gold and silver respond with it, so that is being looked at as a safety play with regards to Iran and it's directly correlated to the oil market, so it is making a meaningful impact."

"The big thing is whether or not Ben Bernanke is going to continue discussing any kind of form of QE," Streible added. "If we see that, we're going to see gold prices move aggressively higher. If we do not see any sign of QE at all, I think that's already factored in from the last time he was talking."

Suki Cooper, an analyst at Barclays Capital, commented, "in the near term, the macro news will set the highs for prices and the physical market the floor, but the longer-term picture remains structurally supportive for gold prices."

"Structurally, there is still a case to be made for a higher gold price," said Standard Bank analyst Walter de Wet, noting that consumer demand would increase with any large price drops. A key driver for gold over the coming 12 months would be low real U.S. interest rates, which factor in inflation, he indicated.

China reported a trade deficit of $31.48 billion in February after a $27.28 billion surplus in January. "The deficit was four times the recent largest deficit and adds to fears of slowdown, leading the [People's Bank of China] to weaken the yuan and lifting expectations of further near-term monetary easing as inflation has fallen back significantly," said analysts at TD Securities, in a note.

(Sources: "Gold eases with euro, focus on Fed outlook," Reuters, March 12, 2012; "Gold futures slip after three-session climb," MarketWatch, March 12, 2012; "Gold Traders Wait For Bernanke," Bloomberg, March 12, 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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