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Goldman Sachs Reiterates Bullish Gold Forecast

Release Date: 
Monday, July 16, 2012

Gold prices rose on Monday along on the release of anemic U.S. retail sales data for June. Gold was $4.40 higher at 8:29 a.m. Pacific Time on the New York Spot market, trading at $1,594.80 per ounce. Spot silver was $.03 higher at the same time, trading at $27.47 per ounce. (Click here for the most current spot prices.)

The U.S. Commerce Department said retail sales fell 0.5% in June, following declines in May and April. Economists had expected a 0.2% increase in sales. Markets will closely watch Federal Reserve Chairman Bernanke's testimony to Congress on Tuesday and Wednesday for hints of further quantitative easing.

Goldman Sachs reiterated its recommendation for buying gold. Analysts at the bank noted that gold is again moving inversely to U.S. interest rates as measured by yields on inflation-protected government 10-year government bonds. Goldman's economists expect to see "subdued growth and further easing by the Fed," the bank said, adding that gold prices may climb toward its six month forecast of $1,840 a troy ounce.

Gold, like other commodities, is likely to be driven by Fed action in the near term and any hint from Bernanke of further monetary easing is likely to send prices higher, ANZ analysts said in a note. ANZ says a price target of $1,680 to $1,700 per ounce is possible if there is a clear signal of further stimulus.

Rebecca Patterson, Chief Markets Strategist for the global institutional arm of J.P. Morgan Asset Management, is also long on gold. She said that central banks have been diversifying their reserves, and "the inflation fear is still alive and well," both of which should help the precious metal. She's looking for the next catalyst that will take gold higher.

Todd Gordon, co-head of research and trading at Aspen Trading Group, provided a technical analysis that may be bullish for gold. He said the past year's prices have formed a flag pattern - which he says signifies a pause in gold's 10-year run rather than a new normal. The researcher thinks it makes sense to go long right around current levels near $1,500 per ounce and look for a top around $2,000 per ounce.

(Sources: "Is Gold Ready to Shine Again?" CNBC, July 16, 2012; "Gold Pares Losses as US Data Cuts Dollar's Gains," CNBC, July 16, 2012; "Gold futures drop on China concerns, retail sales," Marketwatch, July 16, 2012; "PRECIOUS METALS: Gold in Holding Pattern Ahead of Bernanke," Wall Street Journal, July 16, 2012; "PRECIOUS METALS: Gold Steady in Asia Ahead of Bernanke Testimony," Wall Street Journal, July 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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