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China Demand Could Drive Gold Higher

Release Date: 
Monday, March 19, 2012

Gold started the week higher trading at $1668.50 per ounce at 8:34 a.m. Pacific Time on the New York Spot Market with silver at $33.07 per ounce.

Central banks have been active buyers of gold in recent weeks, acquiring as much as 4 tons. Central banks were also net buyers of gold last year to the tune of 439.7 tons.

The Congressional Budget Office announced the proposed U.S. budget will lead to $6.4 trillion in deficits over the next decade, more than double the shortfall in CBO’s previous calculations - even after taking credit for reduced war costs.

Brian Hicks, portfolio manager at U.S. Global Investors in San Antonio, wrote that "we believe China’s increasing demand for gold is one trend that is just getting started." The money manager ultimately expects gold to rise above $2000 per ounce.

"It’s really a function of the rising wealth effect that is taking place here in China," Hicks explained.  Gold demand in China is primarily based on wealth, rather than investment as its driving force, with jewelry demand as a major factor, Hicks said.

"We know the debt levels are too high today and gold is starting to reflect that," continued Hicks.  "But because less than 1% of world financial assets are in gold, we have yet to really see the gold market react to all of this massive money printing.  Once the gold market starts reacting to all of this, that’s when gold is going to go exponential."

(Source:  "PRECIOUS-Gold tracks oil higher, India duty may cap gains," Reuters, March 19, 2012; "Gold Expected to Get Back to $2,000 an Ounce," Bloomberg, March 19, 2012; "Exploding debt under Obama policies," Politico, March 19, 2012; "Greyerz - Gold Will React to the $120 Trillion of Additional Debt," KingWorldNews, March 16, 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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