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Thursday, April 25, 2013

From Rout to Rush - Gold Stages Quiet Rally

Seal of the United States Mint. The design is ...
Seal of the United States Mint. The design is the same as the Treasury seal with a Mint inscription. (Photo credit: Wikipedia)
By CNBC


Chicago, Apr.25, free stocks .- Gold is clawing its way back up amid signs that demand for the precious metal is soaring a week after a massive sell-off sent prices to their lowest level in more than two years.
Hopes of central bank buying and signs of surging demand for physical gold are helping the battered metal bounce back. News on Wednesday from the International Monetary Fund that Russia and Turkey raised their gold reserves in March helped trigger the latest gains.
Gold prices rose 1 percent to about $1,446 an ounce on Thursday, its highest level in more than a week . They are up about 10 percent from a low hit last Monday when the market suffered its biggest ever one-day drop.
"One of the interesting things we've seen is the dramatic pick-up in physical purchases and it has been astronomical," said Jonathan Barratt, founder of the commodities newsletter Barratt Bulletin, in Sydney.
"People want to hold physical gold at this level and that's not just in India," he said, referring to the world's biggest consumer of gold. "In Australia, we had a queue outside one of our bullion houses about half-a-kilometer long and I haven't seen something like that for years."
In another sign of surging demand for gold after last week's rout, the U.S. Mint said this week it hadsuspended sales of its one-tenth ounce American Eagle gold coins.
Analysts say that the Japanese are among the strongest buyers of gold, which they see as refuge from a weak yen and the prospect of inflation finally returning to Japan.
"The U.S. Mint has suspended the sales of their smallest American eagle coin on the back of demand that has tripled," analysts at CMC Capital Markets said in a note. "Flows from Japanese consumers have increased as the government pursues a stimulus program that could see its currency decline."
Enter the Central Banks
This month's sharp fall in gold saw prices slide about 15 percent over two days in a rout that took many investors by surprise. One trigger for the heavy selling was talk that Cyprus, the tiny beleaguered euro zone state, was mulling plans to sell its gold reserves.
Analysts said that despite bearish sentiment, central banks were likely to continue their gold purchases as they look to diversify their asset holdings.
"If the central banks were happy to buy gold at $1,550 then it's a lot cheaper down here. So, if you're a central bank that is diversifying then you would look at it," said Barratt.
"The fundamentals for gold are all the same only the market's a lot cheaper and people are realizing that and that's why they are coming back to it," he added.
Others said it would take much longer for the bearish sentiment to subside. "Gold has experienced the worst rout since the 1980s and is now in a technical downtrend," Credit Suisse said in a note published earlier this week. ...
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