Gold will reach alltime highs again in 2012

While gold is pushing towards its 200d MA at $1,633, we are not convinced that it can sustain a break above this level yet because liquidity remains locked up as the European interbank
market continues to malfunction. The stress in the interbank market remains evident in the Euribor/OIS spread which remains high, at 0.95%. During periods of no interbank stress, this spread is usually less than 0.10%.

Funding issues continue to result in money being deposited with the ECB instead of being utilised within the greater financial system and, as a result financial assets, including gold, are
struggling. We believe gold will move higher as funding stress declines — but not as soon as in January. The lack of liquidity and leverage is reflected in the futures market, where for example
gold open interest in COMEX is still very low.

In the physical market, we continue to see steady buying of gold. But this demand is more likely to provide support for gold on dips below $1,600 rather than push it substantially higher.
The improved physical demand is reflected in the SGE premium which was at $8.50/oz yesterday, up from around $2/oz in mid-December, but still well below the $15+/oz premium
seen in October. We expect Chinese physical demand to remain steady, and even improve ahead of Chinese Lunar New Year.

We would look to buy gold on dips towards $1,560. We also believe that the metal, in the next few weeks, is likely to find strong resistance on approach of $1,650. We still believe that gold will reach all-time highs again in 2012. Initially, we antici-pated this in Q1:12, but we now see a growing probability that it may only happen in Q2:12.

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