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Standard Bank Recommends Buying Dips on Resurgent Physical Demand

Release Date: 
Friday, December 14, 2012

The price of gold was slightly lower today as investors continued to lock in profits for the year-end. Gold was $1.00 lower at 7:17 a.m. Pacific Time on the New York Spot Market, trading at $1,697.30 per ounce. Spot silver was essentially unchangedat $32.63 per ounce. (Click here for the most current spot prices.)

President Obama and House Speaker John Boehner met yesterday to discuss a resolution for the fiscal cliff as frustration mounted over a stalemate in talks. "The assumption is that the politicians will reach a sensible resolution, which will help gold eventually," Standard Chartered analyst Daniel Smith said. "Despite the Fed's implementation of QE4, the (precious metals) market remains focused on the potential adverse liquidity impact of the U.S. fiscal cliff," Deutsche Bank said in a note.

With some investors taking year-end profits, “gold is struggling around the $1,700 handle…We still believe that this will prove temporary, with fundamental drivers in place (ample global liquidity and a low real interest rate environment) to lend gold support over the long term,” Standard Bank said in a research note.

The bank notes a “resurgence” in physical buying. “[T]here are primarily three reasons for this resurgence in demand. The first has already been alluded to—a weaker gold price. For Indian buyers in particular, this lower gold price has relieved some of the pressure of a weaker rupee and a higher interest rate environment—prompting them to return to the market, after being noticeably reticent this past year…Sustained and strong demand out of South East Asia has also played a significant and more stable role in the physical gold market. And it is this buying, particularly from China, that we look to as one point of support for gold upon which we premise our view that dips below $1,700/oz should be bought…”

Discussing gold prices in 2013, Ole Hansen, head of commodity strategy at Saxo Bank, said “if we finally make a move above $1,800, we can probably see it pops very quickly up to $1,900 and potentially set the high at around $2,075.”

 (Sources: “PRECIOUS-Gold holds near $1,700 as focus turns to fiscal cliff,” Reuters, December 14, 2012; “Gold Seen to Rise as High as $2075 in 2013,” Bloomberg, December 14, 2012; “Focus: Physical gold demand support still in place,” Standard Bank Commodities Daily, December 13, 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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