"Fundamentals are still very much in place," says Adrian Day, president of Day Asset Management. There is "concern about easy money in U.S. and Europe and China and elsewhere and concern about global monetary system." The IMF forecast that China would grow 8.2% in 2012, but that it could shed up to 4 percentage points from its target if Europe enters a deep recession. The EU imported 281.9 billion euros worth of goods from China in 2010, up 31% from a year earlier. If China's growth does come under pressure, the expectation is that the Central Bank will pump more yuan into the system in the form of interest rate cuts or by lowering the amount of money banks must hold in their reserves.
More money in the system is typically good for gold, but a recent problem has been, especially in developed countries, that the money supply increases but banks don't lend that money. Day thinks at some point that will reverse, "money that is created doesn't go away, it has to go somewhere ... [and] that is positive for gold."
Mark Arbeter, chief technical strategist at S&P Capital IQ, says that he is bullish on gold due to the weak dollar policy in the U.S. "The next major hurdle for gold is chart resistance at $1,800 an ounce." Arbeter says that "gold sentiment recently hit its lowest level since late 2008 and considering that gold has been one of the strongest markets over the past 10 years, we think this supports much higher prices."
>To contact the writer of this article, click here: Alix Steel.
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