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Morgan Stanley, UBS, Barclays See Support for Gold

Release Date: 
Monday, March 5, 2012

Gold moved lower on Monday, reflecting concerns over progress in Greek debt restructuring and euro zone economic data that drove the euro lower against the dollar. Gold was also lower on China’s projected growth target which is the lowest in eight years. China also targeted inflation at 4%. Gold was trading at $1707.70 per ounce at 6:09 a.m. Pacific Time on the New York Spot Market with silver at $34.76 per ounce.

Analysts at Morgan Stanley, UBS and Barclays Capital say gold will be supported in the long-term by several factors including loose monetary policy, negative real interest rates and inflation concerns. "Negative real interest rates and accommodative monetary policy were and remain the key drivers of investment demand," Morgan Stanley said in a note. "Bernanke's testimony did nothing to remove this benefit," the bank said, discussing remarks by the Fed chairman that fell short of hinting at further quantitative easing. "Under these circumstances, QE3 would have been icing on the cake for the monetary easing trade, but not the fundamental driver of bullish investor positioning," Morgan Stanley said.

"We heard more mention of rising inflation expectations than we have for some time," said UBS. The bank noted, "in our meetings last week, factors like the explosion in the balance sheets of the ECB, BoJ, BoE and the Fed and large exports of gold from Hong Kong into China in Q4 were regularly cited as reasons to view gold favorably this year." Still, the bank saw no progress on a reversal in monetary policy. "The macro community appears to be engaged in a waiting game, with no one willing to take the first step," UBS said.

Yesterday, Suki Cooper of Barclays Capital said, "the broader macro backdrop remains gold favorable, given the negative interest-rate environment, longer-term inflationary concerns and lingering sovereign debt uncertainties."

(Sources: "PRECIOUS-Gold slips as euro zone worries lift dollar," Reuters, March 5, 2012; "Gold May Drop as Stronger Dollar Erodes Demand, China Lowers Growth Target," Bloomberg, March 5, 2012)

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