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Goldman Sachs Stays Long on Gold

Release Date: 
Monday, November 14, 2011

Investment bank Goldman Sachs announced it is maintaining a long position in gold based on its expectation that U.S. interest rates will remain low.

"We expect gold prices to continue to climb in 2011 given the current low level of U.S. real interest rates. Further, with our U.S. economics team now forecasting slower U.S. economic growth in 2011 and 2012, we expect U.S. real interest rates to remain lower for longer, supporting higher gold prices through 2012," Goldman Sachs said in a note. "We continue to recommend long trading positions in gold," the bank said.

The euro rose against the dollar on increased optimism that Italy and Greece can resolve their debt problems under new governments. Italy's new Prime Minister Mario Monti is facing his first test of confidence today when Italy auctions up to 3 billion euros of Treasury bonds after higher yields shocked markets in last week's auctions.

"The change in political leadership is calming the financial markets," said Ong Yi Ling, analyst at Phillip Futures, adding that confidence in the new leaders could fuel risk appetite and push gold prices higher. While increased optimism may help gold, so may uncertainty and the potential consequences of combating the debt, Ong suggests. "In the longer term there is still a lot of uncertainty, such as the many challenges Italy faces as to how the new government will implement harsh reforms," said Ong Yi Ling, an analyst at Phillip Futures. "The overall backdrop remains supportive of safe haven demand in general."

Credit Agricole analyst Robin Bhar noted that ultimately, evidence seems to point to ongoing demand for gold. "Speculative positioning is probably winning out against everything else and if we can move from where we are now, we may see a rally higher," he noted.

(Sources: "PRECIOUS-Gold dented by dollar gains; Europe in focus," Reuters, November 14, 2011; "PRECIOUS-Gold steady as Italy, Greece offer hope," Reuters, November 14, 2011; "Goldman Sachs ups gold, silver price forecasts," MarketWatch, November 14, 2011)

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