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Societe Generale Sees Gold at $2175 in 2012

Release Date: 
Tuesday, October 11, 2011

Societe Generale said it remains broadly bullish on the outlook for gold and now expects the 2012 gold price to average $2,175 per ounce. The precious metal has averaged approximately $1,540 per ounce so far this year.

Stocks, the euro and gold were pressured by growing pessimism over a new plan to tackle euro zone debt ahead of a vote in Slovakia to ratify changes to the region's rescue fund. Slovakia is the only country in the 17-nation euro area that has not ratified a planned increase in the 440-billion-euro European Financial Stability Facility. The nation's four-part coalition yesterday failed to resolve a dispute with lawmakers who objected to the ratification.

The drop in equity and precious metals markets reflected investor suspicion over the pledge by French and German leaders to unveil a plan by early November to address the debt crisis, news that initially saw an optimistic market response. "Yesterday's (rise) in the single currency has all the hallmarks of a helium-induced rally," said Michael Hewson, an analyst at CMC Markets. "(Its) effects will soon wear off once the markets realize that, for all the optimism yesterday, Merkel and Sarkozy will more than likely be unable to deliver, as on so many previous occasions, what they promised they would.

"If the solution seems biased toward creating more liquidity, that should push gold higher," commented Standard Bank analyst Walter de Wet. "A plan to end Europe's debt crisis is bearish for gold, however until investors believe whatever plan they have is going to work, gold will be supported," Wang Xiaoli, chief investment strategist at Citic Futures Co., said. "We're in the peak seasonal demand period now and that should also help buoy gold prices."

"Investors are moving back into gold as the effect of the recent Comex margin hikes wear off, and as commodities have generally been recovering over the last few days on the back of hopes for a Eurozone crisis solution," said Tyche Group associate director Martin Hennecke in Hong Kong.

Seasonal buying, particularly in India ahead of the Diwali festival of lights on October 26, should bolster gold prices, Swiss bank UBS said in a note. India is the world's largest gold consuming nation. "Over the last couple of years, the two weeks leading to Diwali brought overall buying that was consistently above average - even twice the weekly average - despite rising prices," it said. "Although day-to-day volumes will naturally show some degree of price sensitivity, as they have in previous years, this seasonal demand is an important underlying support for gold, as any dip in prices will likely encourage a buying spree."

(Source: "Gold Declines From Two-Week High Before Slovakia Vote on Bailout Fund," Bloomberg, October 11, 2011; "Gold retreats as markets await Slovak vote,"Reuters, October 11, 2011; "Gold extends gains in Asia trading," MarketWatch, October 11, 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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