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Governments, Money Managers Long on Gold

Release Date: 
Monday, June 27, 2011

As the uncertainty over the Greek debt situation continues to affect global markets, key investors including money managers and governments maintain positive expectations for gold prices in the long term.

Money managers increased their net long positions, or bets, that gold prices will go higher, to 206,300 contracts in the week ended June 21, according to data from the Commodity Futures Trading Commission. "This is the highest level for nine weeks and was also the sharpest rise in positions in (four and a half) months," Commerzbank analysts said in a note to clients. Gold had sold off along with other commodities last week on news that the International Energy Agency would release more crude-oil supplies into the market to offset lost Libyan production brought down oil futures.

Analysts at MF Global said lower energy prices "should be constructive for metals, as this will reverse some of the inflationary forces in the economic system and perhaps persuade central bankers to hold off on raising interest rates."

The official sector also views the long term outlook for gold favorable, with interest to increase central bank holdings, UBS analyst Edel Tully said in a note. In the bank's Annual Reserve Management Seminar for Sovereign Institutions-a gathering of central bank reserve managers, multilateral institutions and sovereign-wealth funds hosted last week-a plurality of attendees expected gold will be the best performing asset class for the remainder of this year, with global stocks in second place.

"Towards the six-month horizon, prices should keep the uptrend we have seen since 2008," said Dominic Schnider, an analyst with UBS Wealth Management, adding that prices could target $1,600 in the second half of the year. "Real interest remains in negative territory -- I think this remains quite supportive. And if you look at emerging markets, inflation remains stubbornly high."

A Greek minister warned on Monday of "catastrophe" if parliament blocks an unpopular 28 billion-euro ($40 billion) package of tax increases and spending cuts in a parliamentary vote expected on Wednesday. "If Greece's parliament passes the austerity measures, it could be positive for risk assets such as commodities," said Ong Yi Ling, an analyst at Phillip Futures, noting that gold could be a beneficiary as it has closely correlated with moves in other commodities recently.

(Sources: "PRECIOUS-Gold steady on Asian physical buying; dollar weighs," Reuters, June 27, 2011; "Gold Prices Fall as Weak Euro Weighs on Metals,"Wall Street Journal, June 27, 2011; "Gold turns lower, below $1,500 an ounce," MarketWatch, June 27, 2011; "Gold Back Above $1,500/oz on Euro Zone Worries," CNBC, June 27, 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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