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UBS: Physical Gold Demand Rises in India

Release Date: 
Wednesday, January 4, 2012

Gold was steady in trading on Wednesday holding earlier gains on economic data from the United States, Europe and Asia and concerns over Iran's nuclear program. The price of gold was slightly higher on the New York Spot market, trading at $1608.60 per ounce at 7:17 a.m. Pacific Time on the New York Spot Market with silver at $29.42 per ounce.

Data showed improved consumer demand in Asia, which includes the largest gold consuming nations. "Our physical sales to India yesterday were about double average levels," wrote UBS analyst Edel Tully. "The physical demand side of things will be the big factor helping to take prices back up again, along with dollar weakness," said Daniel Smith, commodities analyst at Standard Chartered.

Phil Streible, senior commodities broker at RJO Futures, believes that a pause in gold prices will trigger more buying. He adds that fund managers and individuals may diversify into gold early in 2012. "It's a different mentality at the start of the year," Streible said, "fresh money comes back in."

An article by financial journalist Matthew Lynn suggested that the current low interest rate environment is helping to sustain gold's long upward trend. "The gold price is not going to fall in any sustained way until interest rates start to rise significantly. Perhaps they don't need to go back to 1980s levels because they are starting from a lower base. But interest rates of 10% would be necessary to create a bear market in gold."

Tensions between western nations and Iran over its nuclear program continue to rise, with Tehran threatening to cut off a critical oil supply channel. HSBC analyst James Steel explained how this may continue to influence the gold market. "With 40 percent of the world's internationally traded oil moving through the Strait of Hormuz, even a low probability of the strait's closure - Iran threatened to do this last month if it were subject to further sanctions - can have a material impact on oil and hence on gold prices," he said.

(Sources: "PRECIOUS-Gold steady after rally; Iran tensions support,"Reuters, January 4, 2012; "PRECIOUS-Gold eases as euro falls but consumers step in," Reuters, January 4, 2012; "Gold Prices Struggle to Hold $1,600," TheStreet, January 4, 2012; "What would it take to burst gold's price?," MarketWatch, January 4, 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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