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Gold Demand Will Intensify With Worldwide Stimulus
Pinnacle Digest writes: In Bullionvault.com’s latest daily commentary on the precious metal sector, Ben Traynor breaks down exactly why gold demand will intensify, despite the bearish sentiment in the market.
If you take a step back and look at the global financial market, it doesn’t take long to realize we are close to another round of stimulus or QE, across nearly every major economy.
"Loose monetary policies, with a scope for more aggressive balance sheet use in the US and Europe, will keep real [interest] rates in most reserve currencies low (or negative) during 2012," says a note from Merrill Lynch analysts today.
"We continue to believe that this will allow investor demand to remain strong and prices to reach our $2,000 an ounce target by the end of the year."
Spain has now been given three years to meet the required 3% deficit-to-GDP target (instead of the previously agreed two years). It has been reported that Spain will be able to use 30 billion euros this month (of the 100 million agreed upon at last month’s EU Summit) to help restructure its banking system.
While we are confident the 100 million euros will be used up quickly, Luc Frieden, finance minister for Luxembourg thinks otherwise.
"There's no emergency here," added Luxembourg finance minister Luc Frieden.
"There's a clear path towards stabilization...the markets have to realize that the money is there, more money than is necessary."
While it can be argued how quickly the money for Spain’s bank restructuring will be used, the facts remain clear. The Eurozone will require more bailouts for more countries and this bodes very well for the long-term price appreciation in gold.
In addition, the American economy is getting closer to the edge, according to John Williams, president of the San Francisco Federal Reserve Bank.
"If economic data keep coming in below our expectations...then I think we would need more [policy] accommodation," said Williams.
Lastly, Chinese imports and exports have slowed considerably. Export growth slowed from an annual rate of 15.3% in May to 11.3% last month.
"[We expect] the government to introduce more policy easing measures to offset the slowdown in export growth," says Bank of America Merrill Lynch economist Lu Ting in Hong Kong.
"There will be huge stimulus."
With inflation slowing in China, we strongly agree with Lu Ting's prediction.
Click here to read the full article from Bullionvault.com.