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20 May, 2010 11:28

Gold prices underpinned by economy and currency concerns

Until the selloff of the last 3 days, gold prices had been buoyed by the Greek debt related risk aversion fears, underlining its safe haven credentials, with analysts saying further volatility could push prices higher.

The onset of Mediterranean debt contagion fears and concurrent meltdown of the Euro throughout March and April, had an upside for the oldest store of wealth of all. After holding between $1100 and $1200/oz after its first ever push beyond $1220 last November, it spiked to a new all time high of $1,249.40 an ounce on May 14.

It’s been sold off amidst volatility this week with the announcement of a German ban on naked short selling of bonds and bank shares, but independent analyst Pavel Pikulev, says longer term concerns about indebted debt nations looking to monetize debt are likely to see gold remain in favour.

“The investors must be really afraid that in the longer run these gaps in budgets and quickly rising sovereign debt levels will be covered with fresh printed money. With the longer run, despite current deflationary trend inflation can emerge and could eat into the savings and eat into the resources.”

Those concerns helped trigger a surge in gold buying, with ongoing uncertainty about the direction of the Euro, and massive public debts in major developed economies likely to underpin demand for gold as an investment according to Finam analyst, Zhdan Shakirov

“I doubt that in the near future – in the next several months or so – there could be any sharp corrections…Until the problems are settled. Later on, yes, there could be a correction.”

Despite gold prices easing this week Pavel Pikulev believes underlying macroeconomic concerns could see the gold bull market continue over the longer term.

“Despite corrections, which are going any way in any market, the upper bullish trend in gold could be quite persistent and long-term."

Pessimists say that the precious metal, which has powered from a low of near $700/oz in the wake of the 2008 Lehman Brothers meltdown, has become overbought. But equally, other commentators are looking for much more upside with concerns about supply adding to inflation and market risks leading some to look for prices as high as $2000 and $3000.