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Earthquake Focuses Analysts on Inflation, Safe Havens

Release Date: 
Monday, March 14, 2011

The overwhelming humanitarian and economic impact of the earthquake and resulting tsunami in Japan are beginning to be seen this week. More than 10,000 people are believed dead and fears are growing that a damaged nuclear plant may experience a partial meltdown.

With the tsunami submerging entire coastal towns, losses are expected to reach $171-$183 billion, according to Credit Suisse. Gold prices are rising on the New York Spot Market and several analysts believe gold prices may go higher:

"Some investors expect some of the Japanese insurance companies to start selling their dollar assets to raise money. Perhaps gold could be boosted as an alternative currency itself," said Ong Yi Ling, investment analyst at Phillip Futures in Singapore. "In the short term, I think gold prices will head up due to a flight to safety and investors seeking out a safe haven."

"Japan is another risk element in a plethora of events which have been important in the minds of investors in the past quarter," noted Deutsche Bank analyst Daniel Brebner. "You have the Middle East/North Africa situation, the peripheral euro zone debt issues which seem to be re-emerging, there are questions with respect to China raising interest rates near term, and there are municipal issues in the United States, particularly on debt." Providing his outlook, Brebner said, "This is all creating an environment where there appears to be support for precious metals, and gold in particular."

"This new crisis adds to the geopolitical/oil crisis already in the background of global markets," said Societe Generale in a research note. "This event may contribute to rising fears of inflation, and may reinforce central banks’ dilemma, between policy tightening and a wait-and-see attitude." The firm added, "No doubt in our minds this will reinforce the Fed's path to stay with their zero rate policy for some time in spite of the ECB.”

“With the recent and ongoing political events in the Middle East and Africa, combined with the devastation in Japan, I believe gold will remain at the forefront of most sensible investors’ minds,” said Gavin Wendt, an analyst at MineLife Pty Ltd. “Gold will hit further record highs this week.”

(Sources: “Gold Rises as Japanese Quake Fuels Risk Aversion,” CNBC, March 14, 2011; “Gold Price Gains for Second Day on Japanese Earthquake, Turmoil in Libya,” Bloomberg, March 11, 2011; “PRECIOUS-Gold rises 1 pct on Japan quake, Tokyo premiums jump,” Reuters, March 14, 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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