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Long Term Gold Bulls: Morgan, Goldman, Standard Bank

Release Date: 
Wednesday, May 16, 2012

Concerns over the eurozone and political deadlock in Greece weighed on gold prices. The euro reached four-month lows against the dollar as Spanish and Italian bond yields leapt higher while European equities hit their lowest level this year. Nonetheless, gold showed resilience on the New York Spot Market today, trading $4.50 higher at $1,549.80 per ounce as of 7:06 a.m. Pacific Time. Spot silver was $0.12 higher at the same time, trading at $27.94 per ounce. (Click here for the most current spot prices.)

Meetings in Athens today will address the formation of a Greek caretaker government. Credit Agricole CIB strategists said the talks could set the stage for new elections. The vote must occur before the end of June for Greece to receive further bailout tranches in time to meet its debt commitments. There were press reports of Greek depositors withdrawing 700 million euros ($890 million) from the nation’s banks Monday, which may make Greek banks more dependent on funding from the European Central Bank.

The European Central Bank will be forced to pump more money into the euro region in response to the debt crisis, reviving the appeal of gold, the head of commodity research at Morgan Stanley in New York, wrote in a May 14 report. The ECB has provided more than 1 trillion euros ($1.28 trillion) to avoid a credit crisi. Gold prices will rebound to an average of $1,825 this year and $2,175 in 2013, Morgan Stanley forecasted.

The Goldman Sachs commodity research team led by Jeffrey Currie in New York expects gold prices to rise 26 percent to $1,940 an ounce in 12 months according to a May 9 report. Gold rose about 70 percent as the Fed bought $2.3 trillion of debt in two rounds of so-called quantitative easing ending in June 2011, the bank noted.

The recent sell-off in gold is unlikely to continue in the longer term, with the precious metal poised to reach $1,900 per ounce towards the end of the year, according to Walter De Wet, head of commodities at Standard Bank. "If the dollar is strong and the euro is weak, gold trades lower, but ultimately it de-links especially when we get more money printing," said De Wet said. "Longer term we still think it’s going to go up." De Wet noted that buyers are increasingly choosing to hold gold coins and bars, particularly individual investors and central banks.

Marc Ground, an analyst with Standard Bank, said in a note that "there is sustained and strong physical buying coming into the market from the Far East."

(Source: "Gold Eclipsed by Dollar Haven as Goldman Sees Rally (Update 3)," Bloomberg, May 16, 2012; "Gold to Hit $1,900 by Year End: Commodities Pro," CNBC, May 16, 2012; "PRECIOUS-Gold falls as Greece batters global markets," Reuters, May 16, 2012; "Gold drops ahead of Greek meetings," MarketWatch, May 16, 2012; "PRECIOUS METALS: Gold Ticks Lower With Euro On Greece Worry," Wall Street Journal, May 15, 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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