2012-02-15

The defensive nature of gold should continue to support investment demand as investors look for safe havens

The gold price bounced back from overnight losses in morning trading on Tuesday, rising $3.61 to $1,727.51 per ounce.  The spot price of gold fell to as low as $1,711 at approximately 8:12am ET, but jumped back toward $1,730 after U.S. retail sales missed expectations.  With a 0.4% increase, January retail sales came in below the 0.7% consensus estimate among economists.  Silver rebounded alongside the gold price, from $33.35 to $33.79 per ounce.

Analysts at Morgan Stanley also remained constructive on gold prices on Monday.  “The defensive nature of gold should continue to support investment demand as investors look for safe havens.  A continued low or negative real interest rate environment will also provide support.” One factor that could work against the gold price in the near term, however, is rising bullish sentiment – according to a note by TD Securities.  Last Friday, the Commodities Futures Trading Commission (CFTC) released its weekly Commitment of Traders report.  Speculative net long positions in gold futures increased by 4.0% in the week ended February 7, and by 44.0% on a year-to-date basis.

TD Securities’ Global Precious Metals team wrote in a note to clients that the rise is “too much too soon arguably.”  The firm contended that from a contrarian perspective, the increasingly positive sentiment could provide a headwind for the gold price in the weeks ahead.

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