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Bargain Hunters, Physical Demand May Support Gold

Release Date: 
Monday, December 19, 2011

Gold prices were little changed on the New York Spot Market this morrning as bargain buying was tempered by a rise in the dollar following news of North Korean leader Kim Jong-il’s death. At 7:17 a.m. Pacific Time, gold was trading at $1599.00 per ounce and silver at $29.21 per ounce.

"Gold is still an attractive investment, and while a stronger dollar will cap gains, prices should remain supported as there are many buyers looking out for a bargain," said Tao Jinfeng, chief investment consultant at Haitong Futures Co. Lower prices are prompting physical demand from European buyers, said Afshin Nabavi, head of trading at MKS Finance. "We have seen since last Wednesday very good demand for physical [gold]," he noted.  "It was still continuing this morning."

"Gold suffered from a renewed rush for dollar liquidity, but in the long run its outlook remains solid," noted Andrey Kryuchenkov, an analyst at VTB Capital in London.  "Accommodative monetary policy across the globe will continue to secure gold’s inflation hedge role."

According to Saxo Bank senior manager Ole Hansen, a move back above the precious metal's 200-day moving average price could trigger more gold buying. "I think gold investors could be lurking in the wings if we get a good move back above (there)," Hansen said.

Fitch Ratings lowered its outlook for French debt to negative from stable on Dec. 16, noting that France’s budget deficit and debt make the country more vulnerable to the debt crisis as compared to the highest-rated European economies. Fitch Ratings warned it might downgrade France and six other euro zone nations since a solution to the European debt crisis is "technically and politically beyond reach."

(Sources: "PRECIOUS-Gold swings back above $1,600/oz as dollar retreats," Reuters, December 19, 2011; "PRECIOUS-Gold weakens after Fitch downgrade warning," Reuters, December 19, 2011; "Gold Declines as European Debt Crisis, Kim’s Death Strengthen the Dollar," Bloomberg, December 19, 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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