Gold, Silver Uptrend Still Intact: Natixis

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...Investors are therefore likely to take comfort from the fact that, should profit taking materialise, any subsequent dip in the gold price should be relatively short-lived as underlying physical demand remains positive...

In recent years, as gold has trended higher, the floor (or support level) for the price has gradually moved upwards. In particular, the events of the past few months have provided an insight into the price levels at which fabricators have generally regarded as buying opportunities. For example, the drift towards the mid-$640s during mid to late June was met by strong physical demand, notably from the price sensitive markets, such as East Asia, India and the Middle East. However, despite showing signs of underlying strength, prices weakened over the month and the lack of investment demand has contributed to the modest downgrade of our price forecast for the remainder of this year as well as for calendar 2008, although, on balance, we remain bullish towards the yellow metal.

Investment interest is maintained

This view is premised upon the fact that the flow of investment funds is expected to continue to come into commodities, of which gold will be one beneficiary. The market remains concerned about the outlook for the global financial market and, in the short term, this has already manifested itself in terms of a further deterioration in the value of the US dollar. Investors are therefore likely to take comfort from the fact that, should profit taking materialise, any subsequent dip in the gold price should be relatively short-lived as underlying physical demand remains positive. Staying with the demand side, further support has been forthcoming this year from producer de-hedging following the termination of a number of positions.

The outcome from our relatively benign supply-demand outlook should therefore see prices for the reminder of this year average a little over $670, producing an average for the full year of $665. The generally positive sentiment is also expected to carry over into 2008, due to rising support levels, and should be sufficient to produce an average for next year of $680.

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