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HSBC Says Gold May Top $1,900 in 2012 As Fiscal Cliff Nears

Release Date: 
Monday, August 6, 2012

Gold moved higher as the dollar fell to a one month low. Gold was $9.00 higher at 7:24 a.m. Pacific Time on the New York Spot Market, trading at $1,613.60 per ounce. Spot silver was $.09 higher, trading at $27.99 per ounce. (Click here for the most current spot prices.)

"Market participants are now betting on Fed action at next month's FOMC (Federal Open Market Committee) meeting as the unemployment rate ticked up, even though the payrolls figure beat expectations," said Chen Min, an analyst at Jinrui Futures in China.

"There is still room for easing if it is required, and there is still a perception that it may be required," Mitsui Precious Metals analyst David Jollie said.

Commodity Futures Trading Commission data showed that hedge funds and money managers raised their net long positions in. gold and silver futures and options in the week ending July 31 on speculation of more Fed stimulus.

Gold could be one of the few assets to profit from political and economic turbulence in the U.S. as the "fiscal cliff" approaches, potentially creating a rally in which gold may reach $1,900 per ounce by year end, HSBC analysts said in a report. The fiscal cliff refers to automatic tax increases and spending cuts that commence beginning in 2013.

"Economic uncertainty, geopolitical tensions and the uncertainty of the U.S. November elections are theoretically gold-bullish," and gold should perform better later in the year "when U.S. growth is poor and the dollar is weak," HSBC said. "We expect prices to rally to above $1,900 per ounce by the end of the year. Patience is the most important commodity."

The HSBC report says that gold is seen to be immune from governmental fiscal and monetary policies and, therefore, should, attract investors as a "neutral" asset outside the risk on- risk off spectrum. Gold should retain its value as central banks bolster their economies with quantitative easing that can undermine currency markets, the report said.

"[W]e retain our bullish view on gold for the second half of 2012, buoyed by official sector demand and our expectations of U.S. dollar weakness as the market becomes more fixated on the currency's value as the U.S. fiscal cliff story gains greater traction."

(Sources: "PRECIOUS-Gold rises on expectations of more U.S. stimulus," Reuters, August 6, 2012; "PRECIOUS-Gold ekes out gains as U.S. data weighs on dollar," Reuters, August 6, 2012; "Gold to Rally Above $1,900 by End 2012: HSBC," CNBC, August 3, 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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