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Gold Rises as Uncertainty, Debt Weighs on Policy

Release Date: 
Wednesday, April 13, 2011

The price of gold rose on Wednesday, retaking ground after the prior day's profit taking. Investors have had their eyes on the dollar's slide and expectations for near-term accommodative monetary policy in the U.S. and other nations even as inflation concerns linger. Gold traded at $1459.20 per ounce at 6:48 a.m. Pacific Time on the New York Spot Market. Analysts at UBS, ANZ Bank and GFMS Ltd. commented on the market environment for gold focusing on inflation, monetary policy and government debt.

"The direction of U.S. monetary policy is the key theme this quarter, and the uncertainty surrounding this includes both the timing of any tightening decision as well as its implementation," said UBS analyst Edel Tully in a research note. "This means that gold's movements in the coming weeks will be highly sensitive to the debates among Fed members."

"While any shift in rhetoric in favor of the hawks would likely push gold notably lower in the short term, as long as the probability of further quantitative easing remains in investors' minds, gold will be well-supported on pullbacks," she said.

Worries over unrest in North Africa, euro zone debt, and expectations the Fed would lag other central banks in tightening monetary policy, have supported gold prices. "At the moment, gold is where the money is being attracted to," said Peter Hillyard, an analyst at ANZ Bank who made a case for rising commodity prices. "For every one of those factors, like the tightening coming and other non-friendly (factors) for commodities, there are many other commodity-friendly risks out there that make people very nervous."

Precious metals research firm GFMS issued a survey showing that gold investment demand continued to drive gold prices higher at an annual rate of nearly 26% in 2010. "The prospects for gold prices this year remain bright," GFMS Chairman Philip Klapwijk said in a statement. "Investors continue to be concerned about the outlook for inflation, with governments in general showing little appetite to tighten monetary policy significantly."

Earlier this year, GFMS projected $1600 gold by year-end. Klapwijk said the firm is sticking to that forecast. "With the spotlight also shining on the state of government finances, there is every reason to believe that investors will remain focused on the gold market," he said.

Sources: "Gold May Rise to $1,600 an Ounce This Year on Investor Demand," GFMS Says"

Bloomberg, April 13, 2011; "GFMS sticks to $1600 Gold for 2011, further growth seen in investment demand," Commodity Online, April 13, 2011; "Gold recovers as dollar eases, haven buying up," Reuters, April 13, 2011)

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