Gold Recovers, But Analysts Still Wary

on Jul 6, 2012

Gold this week bounced back after having recently hit its lowest point since December 2011, Reuters reported. The news outlet said that the recovery is linked to higher opening prices for US stocks as well as speculation that France and Germany may be rallying to help Greece stay in the euro zone, which in turn resulted in an uplift for the euro.

According to Reuters, spot gold prices settled at $1,549.04 for an ounce, up 0.3 percent from a low of $1,527.00. In spite of seeing a rise, however, the precious metal is not immune to a decrease in value in the foreseeable future, especially considering the hits it took in five consecutive months. Reuters reminded that rises in the US dollar was the main cause for previous price drops in the value of gold, crude oil and copper.

Analysts are still hesitant to make bold positive predictions on future market trends. There are growing fears that if internal political and economic tensions leave Greece in danger of being ousted from the European Union, the debt crisis in the euro zone may deepen, which in turn could send shares and other riskier assets on a downward trend.
Anne-Laure Tremblay, an analyst at BNP Paribas, told Reuters: _”Negative market sentiment seems well entrenched and we may see further downside in the price.”_

Robin Bhar, analyst at Societe Generale, echoed Tremblay’s concerns. Bhar said: _“It’s difficult to see a turnaround just yet. There will be one, but I don’t think this is the time, just when we are in the eye of the storm.”_
!m[](/uploads/story/53/thumbs/gold_rallies_2_inline.png)_”Clearly, with people staring into the abyss, it could [fall] $50 or even $100 lower as it washes out. That is the unpredictability of it all and as equities fall, as the Greeks take money out of the banks and the banking sector collapses, I suppose you’d have to be wary of further price falls just to cover for losses in other markets,”_ he added.

However, major investors on the gold market have not lost faith in the performance of gold. The news agency said a recent regulatory filing showed that in the first quarter of this year, John Paulson, an American fund manager, held onto his share in the SPDR Gold Trust, which is the largest exchange-traded fund in the world backed by gold.
Reuters also noted that the physical demand for gold on the Indian jewelry market also took a hit this week when the rupee dropped in value, hitting a record low against the dollar. Demand in India had increased during gold’s four-month low run, but Indian dealers predict that with the rupee going weak against the dollar, buyers may pull away.
Reuters explained that demand in the country could be up due to the wedding season being in full swing, but as it winds down towards the end of May, gold purchases will slow down, too. Gold jewelry is an essential part of the wedding gifts that Indian brides receive from their parents, the news agency added.


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