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U.S. Growth Slows - Goldman Says Gold May Reach $1940/oz

Release Date: 
Friday, April 27, 2012

The price of gold reached a two-week high as U.S. growth slowed, raising expectations of further quantitative easing. Gold traded at $1664.20 per ounce at 7:02 AM Pacific Time on the New York Spot Market with silver at $31.44 per ounce.

U.S. GDP grew at an inflation-adjusted annual rate of 2.2% in the first quarter of 2012, a decrease from the 3% growth seen in the prior quarter. The recovery is "weak, its slow, its insufficient and it will ultimately be disappointing on a consistent basis until people stop expecting a more robust expansion than we're getting," said Dan Greenhaus, chief global strategist at brokerage firm BTIG LLC.

"Stronger US data in (the first quarter) damaged the gold market," Bank of America Merrill Lynch said in a note, referring to prior economic reports in Q1. "Nevertheless, we believe growth will slow down in the coming weeks. Another round of quantitative easing by the Fed should bring new buyers into the market."

Standard & Poor's cut its credit rating on Spain by two notches, citing its expectation the government's budget deficit will deteriorate even more than previously thought due to economic contraction. "Europe has more near-term challenges than the U.S," said Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong. 

Goldman Sachs said that gold may trade at $1,940 per ounce in 12 months. ANZ analyst Natalie Robertson said in a note that gold prices are appearing to be "looking the other way" after "hitting a brick floor last month..."

Jonathan Barratt, chief economist at Barratt's Bulletin, said in a report that a sustained break in gold prices above $1,660 per ounce after a recent period of sideways trading should signal more near-term upside for the yellow metal. "We continue to hold positions in both gold and silver," he said, noting that "the more time we spend at current levels, the stronger the support gets."

Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong, said a trend of accommodative monetary policy should help support gold. Marc Ground, an analyst with Standard Bank, said in a note that "a low long-term interest rate environment and supportive global liquidity growth underpins our long-term bullish view on gold."

(Source: "PRECIOUS-Gold climbs above $1,660/oz after U.S. data after U.S. data," Reuters, April 27, 2012; "PRECIOUS-Gold inches down after Spain downgrade; dollar weighs," Reuters, April 27, 2012; "Gold Traders Get More Bullish as Central Banks Hoard More," Bloomberg, April 27, 2012; "Slowing Growth Raises Fears of Stall," Wall Street Journal, April 27, 2012; "PRECIOUS METALS: Gold Trading In Band In Asia, Risk Sentiment Buoyant," Wall Street Journal, April 27, 2012; "PRECIOUS METALS: Gold Gains As Traders Digest Fed, Europe," Dow Jones, April 26, 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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