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Analysts: Supply and Demand Support Gold

Release Date: 
Tuesday, May 3, 2011

The price of gold retreated from yesterday's trading highs with the precious metal selling at $1542 per ounce at 6:57 a.m. Pacific Time on the New York Spot Market.  Still, analysts at Morgan Stanley, BB&T Wealth Management, Quantitative Commodity Research and Philips Futures have a positive outlook for gold based on underlying supply and demand, economic policy and geopolitical factors.

The surge in commodities prices, including oil, corn, and gold has yet to crimp demand. Inventories are still tight and getting out now would be "premature," said Hussein Allidina, the head of commodity research at Morgan Stanley in New York, operator of the world's largest brokerage.  Betting on lower commodity prices, "broadly speaking, right now is not a good idea, because you do have tight inventories," Allidina said. "You need to ration demand. You are not doing that at current prices." 

"As an investor, I would rather focus on fundamentals, and fundamentals are still positive," for gold, said Walter "Bucky" Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama.  "The trend will be higher over the next three months."rm," he said, discussing market expectations for U.S. rates to remain unchanged and euro zone rates to rise.

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"The underlying facts supporting gold are still intact, such as the ultra-loose monetary policy of the U.S. Federal Reserve," said Ong Yi Ling, an analyst at Philip Futures.  "Unless there's significant job increase, the story of easy monetary policy is still going to remain. But if there is any downside surprise, gold could be pushed up further."

(Sources: "Morgan Stanley Joins Funds Buying Commodities as Goldman Sachs Says 'Sell'," Bloomberg, May 3, 2011; "Gold Steadies After Bin Laden; Silver Stabilizes," CNBC, May 3, 2011; "PRECIOUS-Gold steadies after bin Laden; silver stabilizes," Reuters, May 3, 2011; "PRECIOUS-Gold steady, supported by inflation, rate concerns," Reuters, May 3, 2011)

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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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