Gold Price: Bull or Bear?

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". . .summer has historically been a weak period for gold. However, analysts disagreed on whether history will repeat itself this year."

Statistics show the northern hemisphere summer has historically been a weak period for gold. However, analysts disagreed on whether history will repeat itself this year.

Investec Asset Management said in its April precious metals insight it remains bullish on gold and that prices will defy the historical trend that has consistently seen them fall 10% - 15% around this time of year.

"We are beginning to think that the expected seasonal downturn in gold price. . .may be outweighed by renewed fears about the long-term purchasing power of the U.S. dollar and other currencies," Investec said.

The U.S., UK and Japan are implementing programs whereby their central banks buy government debt, and this, Investec argued, will likely stimulate inflation which will devalue the currency in which the debt securities are denominated.

The U.S. policy announcement resulted in a devaluation of the dollar against the euro and yen and gold moved up by more than $50/oz in the space of a couple of hours to peak at $949/oz when the Federal Reserve said on 18 March it would buy back an additional $1.1 trillion in debt securities, including $300bn of U.S. Treasuries.

RBC Capital Markets said in a note: "We look for gold to stage a pullback of 10% - 15% this summer, suggesting a potential downside risk of $750 to $800/oz."

"With our continued bullish longer-term outlook, we would expect gold to reclaim $900/oz later this year, and perhaps retest $1,000/oz late in the year or into 2010."

"In our view, the leading causes of a potentially deeper pullback would likely be associated with increased scrap supply. . .or due to weakened investment demand for gold," RBC said in its 5 May gold outlook.

In April, GFMS said investment in gold will be the driver to push the price to $1,100 or more this year, further damaging an already battered jewelry sector and increasing scrap supplies into the market. Prices could come off over the next five years as that investment dries up and retreats, said GFMS CEO Paul Walker.

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