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Weak Economic Data in China May Lead to Easing

Release Date: 
Thursday, August 9, 2012

Gold prices rose following economic data from which suggested the world's second largest economy may implement further stimulus measures. Gold was $3.20 higher at 7:39 a.m. Pacific Time on the New York Spot Market, trading at $1,616.80 per ounce. Spot silver was $.15 higher, trading at $28.29 per ounce. (Click here for the most current spot prices.)

Data released on Thursday showed a decrease in price pressures in the Chinese economy along with weaker industrial production, consumption and retail sales. "The data reflect downward pressure on prices coming from weaker commodities ....The numbers confirm that the door for more monetary easing is open," said Dariusz Kowalczyk, a senior economist at Crédit Agricole. HSBC economists said they expect another 0.25 percentage point rate cut by the Chinese central bank, "along with other monetary and fiscal measures."

"There is still QE (quantitative easing) thinking in the background of gold prices," said David Lennox, a resource analyst at Fat Prophets in Sydney. "It won't go away until we see the U.S. in full recovery mode. That's certainly not happening at the moment."

"Any relaxation of monetary policy is likely to be very positive for gold," said Saeed Amen, an analyst at Nomura International Plc in London. "Gold isn't fully pricing in further easing."

Dennis Gartman, publisher of the Gartman Letter and commodities investor, likens gold's current tight trading range to World War I era trench warfare between the bulls and bears. "Ultimately, I think the bulls will win," said Gartman. "I think gold will break out to the upside" in the next month or two.

Renee Haugerud, Founder and Chief Investment Officer of Hedge Fund Galtere Ltd., said, "gold will hit $1800 later this year." Gartman described Haugerud as one of the smartest professionals in the commodities business.

(Sources: "Gold Climbs As Slower Chinese Inflation Fuels Stimulus Optimism," Bloomberg, August 9, 2012; "Gold gains after China data signal easing need," MarketWatch, August 9, 2012: "China data point to slowdown, need for easing," MarketWatch, August 9, 2012; "Gartman: May Eventually See 'Explosion' in Gold," CNBC, August 8, 2012; "Gartman: Gold Traders at War & Decisive Battle Imminent," CNBC, August 8, 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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