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Citibank Analyst Says Gold May Reach $3,400/oz.

Release Date: 
Thursday, May 3, 2012

The price of gold moved lower on a combination of stronger U.S. factory orders, a contraction of euro zone manufacturing activity, a stronger dollar and higher unemployment in Europe. The precious metal traded at $1,652.10 per ounce at 7:18 a.m. Pacific Time on the New York Spot Market with silver at $30.61 per ounce.

Manufacturing activity in the euro zone contracted at the fastest pace in nearly three years during April. Euro zone unemployment rose to 10.9 percent in March, equaling a record, with 169,000 new jobless workers.

Payroll processor ADP stated U.S. private employers added 119,000 jobs in April, well below the projected 175,000 jobs and the smallest gain since September 2011. "ADP private sector employment (data) in the U.S. (is) usually seen as a good proxy to non-farm payrolls on Friday," VTB Capital analyst Andrey Kryuchenkov said, referring to closely-watched U.S. Labor Department figures due Friday. A weak payrolls report could reignite speculation for more monetary stimulus, weighing on the dollar, he said. "In case the payrolls come in weaker than expected, we anticipate the U.S. Federal Reserve may unveil quantitative easing," said Director Ronald Leung of Lee Cheong Gold Dealers in Hong Kong.

Tom Fitzpatrick, an analyst at Citibank, said "we've already iterated a target in the more medium to long-term of $3,400, and over the next twelve months as high as $2,400." The analyst added, "we expect that gold will continue to go up against the dollar, but, over time, we expect it will go up even more against a currency like the euro. So, it's more of a switching of places of the paper currencies, but a bias to believe that gold is going to continue to outperform those paper currencies."

 "Also, in this dynamic where we are seeing a lot of paper printing, a lot of money printing and monetary experiments, gold is reverting to its true safe haven status, which is first and foremost as a hard currency," Fitzpatrick said.

Gnanasekar Thiagarajan, Director at Commtrendz Research, said the recent spate weak economic data from the U.S., a weaker U.S. dollar and rising crude prices could help support gold prices. "Besides, gold is being looked at as an alternative to U.S. dollar," Thiagarajan said.

Asian physical-gold demand should be supported by cultural appetite and income growth, while some upside support may come from a weaker U.S. dollar in the second-half of 2012, said Anne-Laure Tremblay at BNP Paribas.

(Source: "PRECIOUS-Gold eases towards $1,650/oz after U.S. data," Reuters, May 2, 2012; "PRECIOUS METALS: Comex Gold Futures Slip," Dow Jones, May 2, 2012; "PRECIOUS METALS: Comex Gold Futures Slip, " Wall Street Journal, May 2, 2012; "PRECIOUS METALS: Gold Under Pressure In Asia; US Data Eyed," Wall Street Journal, May 2, 2012; ; "Gold extends losses in electronic trading," MarketWatch, May 2, 2012 "Citibank Analyst Extraordinarily Bullish Gold, Oil & US Dollar," King World News, April 30, 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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