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Goldman Sachs Says Debt Ceiling Debate May Bolster Gold

Release Date: 
Monday, January 21, 2013

The price of gold moved higher on expectations that the Bank of Japan will announce aggressive monetary stimulus after its current policy meeting.  Gold was $5.40 higher at 10:15 a.m. Pacific Time on the New York Spot Market, trading at $1,691.10 per ounce.  Spot silver was $0.13 higher at $32.12 per ounce.  (Click here for the most current spot prices.)

The Bank of Japan may consider making an open-ended commitment to buy assets until it approaches a two percent inflation target.  The expectations pressured the yen to a 2-1/2-year low and pushed gold near record levels as to the yen.

"If you start to see inflationary pressure and negative interest rates in Japan, people will be thinking about how to protect their savings," said Nick Trevethan, senior commodity strategist at ANZ in Singapore.  The lack of suitable investment products in the market is likely to drive investors back to gold, he added.

The gold price may rise over the next three months as Congress attempts to tackle the country’s debt ceiling and the U.S. economy slows, Goldman Sachs Group Inc. said.  “We see current prices as a good entry point to reestablish fresh longs,” analysts Damien Courvalin and Alec Phillips wrote in a Jan. 18 report. Goldman Sachs reiterated a three month target of $1,825 per ounce.  “The uncertainty associated with these issues, combined with our economists’ forecast for weak U.S. GDP growth in the first half of 2013 following the negative impact of higher taxes will push gold” to the three-month target, they wrote.

Trading in precious metals increased in the week ending Jan. 15, according to data from the Commodity Futures Trading Commission. Speculators raised their net long positions in U.S. gold futures and options by 8 percent that week..

(Sources:  “Goldman Forecasts Gold Rally Amid Debt-Ceiling Confrontation,” Bloomberg, January 21, 2013; PRECIOUS-Gold rises as U.S. budget talks lift European stocks,” Reuters, January 21, 2013; “PRECIOUS-Gold inches up on Japan easing hopes,” Reuters, January 21, 2013)

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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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