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Morgan Stanley Sees 2012 Gold and Commodity Rally

Release Date: 
Friday, November 18, 2011

Gold will lead a rally in commodities in 2012 as Europe's sovereign-debt crisis continues, increasing demand for the safe haven asset according to Morgan Stanley.

"There's a very strong chance that gold will re-challenge successfully the all-time high," said Peter Richardson, chief metals economist at Morgan Stanley Australia, who has studied the metals markets for more than two decades. Gold could climb to a record $2,200 per ounce in the first half of the year, he said.

The euro-zone crisis shows no sign of resolving and the contagion risk spreading across Europe is just the beginning, Richardson said. "A significant withdrawal of credit, write-downs on balance sheets, these are not good developments for financial markets generally and it's very hard to see how this can end well."

Mitsubishi analyst Matt Turner agrees the financial turmoil is positive for gold. "There is a strong argument that this euro crisis should support gold, especially if the solution to it will involve printing money and easing monetary policies, which are inflationary measures," Turner said.

In October, Richardson noted gold's "restoration of a more normal relationship with the U.S. dollar," meaning that they have an inverse correlation; as the dollar weakens, gold prices are pressured higher. Even in a flight to the U.S. dollar as a haven, there is a "reservoir of potential demand that could come in very quickly" if things start to really deteriorate, Richardson noted.

Goldman Sachs also expects raw-material prices to advance in the next year. The S&P GSCI Enhanced Commodity Index will climb 15 percent led by industrial metals, the investment bank predicts. "We maintain our view that global growth will provide enough support to demand to drive key commodity prices higher," even with the European crisis, said Jeffrey Currie, head of commodities research. Gold will be at $1,930 an ounce in 12 months, the bank said.

(Sources: "Gold Top Pick at Morgan Stanley as Europe Debt Spurs Demand," Bloomberg, November 18, 2011; "PRECIOUS-Gold inches up on weaker dollar, Euro worries weigh," Reuters, November 18, 2011)

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