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Strong Physical Demand for Gold Seen By Analysts

Release Date: 
Wednesday, September 28, 2011

Physical demand for gold was a key factor supporting the metal, according to market experts. Physical purchases remain "very visible" across much of Asia, Edel Tully, the London-based analyst at UBS AG, wrote in a report. UBS noted this week that "Physical demand right now is not just decent, it is exceptionally strong." Marc Ground, an analyst at Standard Bank Plc, concurred, noting "physical demand out of the Far and Middle East remains strong." Saxo Bank's Ole Hansen also noted that increased physical demand should help support gold prices.

Commerzbank analysts wrote that lower prices are driving increased buying of physical gold.

"In India especially, where the festival season is about to begin, demand is reported to be high and some local traders are already speaking of supply bottlenecks," said Eugen Weinberg, Commerzbank's head of commodity research, in a note.

Premiums for gold bars elsewhere in Asia jumped to their highest level since at least February after a drop in prices spurred buying from jewelers and speculators, tightening supplies, according to dealers. Volumes on the Shanghai Gold Exchange hit levels not seen since the Lunar New Year in January, UBS wrote in a research note.

Commerzbank also highlighted that European central banks could soon join their emerging-market counterparts as net buyers of gold. "The price of gold should be well supported on this front in the medium to long term," Commerzbank said.

Standard Bank's Mark Ground also discussed Europe, saying "the continued fiscal/debt problems facing the region should point to further upside for gold." HSBC commented, "If the euro zone's efforts to remedy the sovereign debt crisis falter, gold could still rally even if riskier assets sell off," said HSBC. "Much would depend on if the financial markets become sufficiently rattled that investors turn back to bullion as a safe haven rather than trade it as a surrogate currency."

LGT Capital Management provided their price outlook and assessment of silver demand in a research note. "We remain of the opinion that, on a medium-term horizon, silver is undergoing a process of transformation from a basic raw material for manufacturing and jewelry to an asset for financial investment and a monetary means of payment," the firm said. "For this reason, we believe that global investment volumes will increase and a lasting demand trend will prevail." LGT expects to see silver in a $42-46 per ounce range for the rest of 2011.

(Source: "Calm returns to gold market after big swings," MarketWatch, September 28, 2011; "PRECIOUS-Gold steadies as stock markets turn higher," Reuters, September 28, 2011; "Gold May Decline in New York Trading as Investors Hold Off After Rout," Bloomberg, September 28, 2011; "PRECIOUS-Gold jumps 3 pct on physical buying, soft dollar," Reuters, September 27, 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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