Yellow metal likely to decline further

08:22, March 25, 2010      

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Gold may extend its decline through the second quarter of this year on a stronger dollar and interest raise expectations, said analysts.

The budget crisis in Greece has undermined confidence in Europe and pushed the dollar higher. The higher dollar has also eroded demand for gold as an alternative investment.

The greenback has won the favor of investors and its strength will last for a few months, said Liu Xu, a senior analyst at China International Futures.

"The dollar is a safer investment than the euro now, as the European Union is still troubled by the debt crisis in Greece while the US economy has seen a faster recovery," said Liu.

Gold for immediate delivery dropped to $1,092.47 an ounce on Monday, the lowest in a month, after India raised interest rates last Friday to curb inflation.

"The market is worried that other countries might also follow the tightening policy by withdrawing their stimulus packages and raising interest rates, " said Liu.

The yellow metal may fall to $1,000 an ounce in the second quarter and then rally in September when consumption in China and India, the world's top two gold consumers pick up, said Liu.

From September onwards, Indian families start buying gold jewelry for weddings and towards the end of the year, Chinese customers start buying gold for the New Year.

Liu said he is still optimistic about the long-term yields of gold because the dollar will depreciate in the long run.

Li Huazheng, an analyst at Shanghai Securities, said gold prices may fall in the coming weeks, but it is still too early to predict the momentum.

"The budget crisis is confined to Greece and the EU may take actions to bail out its member state. The recovery signals are mixed and any unexpected policy change would affect the performance of dollar and gold," said Li.

He said gold miners would still make a profit in 2010, but their share prices would fluctuate according to gold prices.

Li said the gold price is mainly determined by the strength of the dollar.

Source: China Daily
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