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Gold was on track to post its biggest weekly advance in four weeks, Friday, over speculation that central banks may boost their purchases of gold.
By Leia Toovey- Exclusive to Gold Investing News
Bullion for immediate delivery gained 0.4 percent to $1,751.22 an ounce by 11:12 a.m. on Friday in London. Prices were up 4 percent last week, the most since the week ended October 28. Gold for February delivery climbed 0.9 percent to $1,754.90 an ounce on the Comex in New York. This is the first time in two weeks that gold closed over $1,750 an ounce.
Prices were given extra upside as the euro climbed against the greenback. The euro was regaining strength over the sentiment that the region will divert a credit crisis. Still, all eyes are on next week’s scheduled European summit for a concrete solution. The new head of the ECB said on Thursday he stood ready to act more aggressively to fight Europe’s debt crisis if political leaders agree on much tighter budget in the coming week.
“The market is betting on some kind of announcement from Europe, [it’s] looking for the liquidity button in Europe to be pressed. That will mean high inflation, and that is giving gold the impetus it has been lacking of late,” said Saxo Bank analyst Ole Hansen in the Reuters report
Last week was not all positive for gold. The metal staged an impressive rally, in concert with equities, Wednesday after the world’s major central banks joined forces to boost liquidity. Gold turned slightly negative, Thursday, as investors were less optimistic that the central bank’s moves would be able to solve the European crisis.
Gold was all the rage in the investing world for a few months this year, hitting consecutive all-time highs until it peaked on September 6 above $1,920. Since reaching that peak gold corrected, losing up to 20 percent of its value. The metal’s decline happened as it departed from its traditional safe haven status in the wake of the depending Eurozone crisis as investors, seeking more liquidity have shunned gold for US treasuries and the US dollar.
“Liquidity is the focus of the market. Gold’s appeal as a safe haven may return only when liquidity improves and market sentiment warms up,” said Hou Xinqiang, an analyst at Jinrui Futures. “Precious metals continue to lose their safe haven status,” Nicholas Brooks, head of research at ETF Securities, told Dow Jones Newswires. “Gold is not a substitute for bonds and Treasuries,” he observed, adding that the yellow metal is susceptible to sharp declines as investors sell it to raise cash.
Despite gold’s slump since touching a record high, analysts and bankers remain bullish on its prospects. Central banks are expanding reserves for the first time in a generation as the precious metal is in the 11tth year of a bull market. According to a note by UBS Securities (NYSE:UBS) on November 30, purchases of as much as 450 tonnes in 2011 may be repeated next year as Asian nations and emerging economies diversify their reserves. Central bank purchases in the third quarter jumped more than six-fold to 148.4 tonnes, according to the World Gold Council.
Analysts have different price forecasts for gold in 2012, but they are all above gold’s last high of $1920. Gold will average $2,025 an ounce in 2012, according to HSBC’s (NYSE:HBC) head of precious metals research, Jim Steel. On December 1, Goldman Sachs(NYSE:GS) revised its 12-month price target for the gold to $1,940 an ounce.
In their commodities analysis, Morgan Stanley(NYSE:MS) recommended investing in gold, claiming that it has been the most resilient in past recessions. MS analysts added: “Gold, and silver to a much lesser extent, is viewed as safe havens and store of value as well as the closest thing to a global reserve currency. MS estimates that price of gold will reach $2,200 per ounce in 2012.
Securities Disclosure: I, Leia Toovey, hold equity interests in Goldman Sachs.