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BofA Analyst Says Gold May Reach $7,000/oz

Release Date: 
Wednesday, May 2, 2012

The price of gold fell on improved weekly U.S. unemployment figures U.S. that boosted optimism for the U.S. economy, lifting the dollar higher and pressuring gold. Gold traded at $1,637.30 per ounce at 7:41 a.m. Pacific Time on the New York Spot market with silver at $30.31 per ounce.

The Labor Department on Thursday said jobless claims declined by 27,000 to a seasonally adjusted 365,000 in the week ended April 28—13,000 lower than expected by economists. Less optimistic news from the Institute for Supply Management indicated that growth in the U.S. services sector slowed to a six-month low in April.

The European Central Bank held interest rates at 1 percent. ECB President Mario Draghi said any exit strategy from the bank's current easing cycle would be premature. Concerns over Spain came in focus after yields rose at a debt auction, showing that investors are worried about Spain's ability to meet its debt obligations.

Eugen Weinberg, head of commodity research at Commerzbank, said, "you need to look at gold as a currency, as a safe haven, as an insurance…I think that the risks in the economy are still, going forward, very high and although the markets seem to get accustomed to the bad news coming on an almost daily basis from the euro zone, I don't think that the problems are over. So the risks are not over, and that's why I think that the [need for] protection against these risks will be gaining."

Bank of America analyst MacNeil Curry described gold's secular bull trend at a Market Technicians Association symposium where he said "we have seen a nice, solid, orderly advance." He projects gold may reach levels somewhere between $3,000 to $5,000 and potentially $7,000 per ounce in its current rally, now in its 11th year.

Gold prices would need to double in less than a year to show the kind of momentum that would signal the end of a long-term cyclical uptrend, Curry says. "Until we see price action take some kind of massive speculative blow-off, where prices effectively double in a year or less, I have to maintain a long-term bullish bias," he said.

Curry added that gold can rally independently of what is happening in the global economy, noting that it held to its uptrend for the last 11 years amid inflation and deflation scenarios, equity bull trends and equity bear trends. "Gold can go parabolic completely on its own. I don't think you need a world ending scenario for that."

(Source: "Gold adds to losses after U.S. jobs, services data," MarketWatch, May 3, 2012 "Gold slips after U.S. jobless claims slide," Reuters, May 3, 2012; "Gold Prices Will Subdue and Then Rebound: Expert," CNBC, April 30, 2012; "Gold may touch $7,000 per ounce before end of uptrend," The Economic Times, April 25, 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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