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HSBC Says Precious Metals Appear Oversold

Release Date: 
Wednesday, October 5, 2011

U.S. stock indexes extended gains on Wednesday after a private sector employment report showed the economy gained more jobs than expected last month. Automatic Data Processing said private-sector payrolls increased 91,000 in September, compared with 89,000 in August. Economists had expected a gain around 75,000 for September. The ADP report comes ahead of the Labor Department’s employment report due Friday.

European stocks also rebounded on Wednesday, with banking equities surging on news that European finance ministers are exploring ways to recapitalize the sector amid growing expectation of a Greek debt default and fears over debt contagion to other nations with global economic consequences.

Analysts at HSBC believe the recent drop in gold prices provides a buying opportunity. "The precious metals appear oversold," wrote HSBC analyst James Steel in a note, citing "changes in risk appetite, with the financial markets moving rapidly from risk-on to risk-off sentiments."

The currency markets were volatile with the euro falling against the dollar. "Less pressure on other, riskier assets like stock markets means there is also less pressure to sell gold holdings to compensate for losses suffered otherwise," said Peter Fertig, a consultant at Quantitative Commodity Research.

Gold and gold receivables held by euro zone central banks rose by 56.8 billion after a quarterly revaluation, the European Central Bank said on Wednesday. "Lower gold prices, in addition to stimulating emerging market demand, may encourage official sector demand," HSBC commented.

(Source: "Gold edges higher after previous session’s selloff," MarketWatch, October 5, 2011 "ECB-Gold reserves up 56.8 bln euros after revaluation," CNBC, October 5, 2011; "Gold Slides 1% as Volatility Spooks Investors," CNBC, October 5, 2011; "PRECIOUS-Gold recovers losses to climb 0.5 pct," Reuters, October 5, 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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