JP Morgan Urges Investors to Buy Gold for the Holidays

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J.P. Morgan metals analysts John Bridges in the U.S. and Steve Shepard in South Africa said that while they realize the difficulties gold miners face, "we feel they have probably underperformed enough for now, and we'd be buying the gold space for the run into the holidays."

J.P. Morgan metals analysts John Bridges in the U.S. and Steve Shepard in South Africa said that while they realize the difficulties gold miners face, "we feel they have probably underperformed enough for now, and we'd be buying the gold space for the run into the holidays."

In a recently published commentary on gold, Bridges and Shepard advised that "the tighter gold supplies and counterparty risk could give gold (and thus directly the equities) a lift through year end."

J.P. Morgan's analysis suggests that "gold has shown two faces to the market: gold equities have underperformed the S&P 500 since the beginning of this financial crisis, but gold bullion has outperformed the general markets handily. We continue to feel this results from the operational challenges the gold miners face as a group but points to upside potential for gold prices as mine supply continues to fall and now central bank sales diminish."

While Bridges and Shepard noted that "our favorite technician feels the dollar could strengthen further," gold should not "be simplified to being the dollar not." They asserted that gold does diverge from its relationship with the dollar "when the supply demand fundamentals for gold overcome the prevailing (price) relationship with the dollar."

"We see mine supply continuing to fall and now, with central banks depleting planned sales quotas, we expect official sector sales to fall quickly," the analysts forecast. "Given the very large above-ground gold stocks, falling supply does not guarantee stronger pricing, but it does, in our opinion, create the right environment for stronger prices."

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