No Correction in Sight as Gold Continues to Rise

Source: Seeking Alpha  (10/29/07)

UBS Securities been waiting for a correction since gold hit its three-month target of US$750, but there appears to be a reluctance to take profits. Over-the-counter investment, a producer buyback or even sovereign buying were cited as possible reasons for buyers remaining in the market each time gold came under pressure in the past two weeks, but UBS admits the real cause is unknown.


...Prices are quickly approaching the US$800 per ounce mark, trading at around US$785 on Monday morning.

The recent run has largely been driven by increased speculation and perhaps other sources, according to the team at UBS Securities. Less willingness in Asia and the Middle East to hold U.S. dollars is another potential catalyst, as are tensions in Iraq and Turkey.

Nonetheless, the firm believes that gold may be overbought at current levels, given that speculators are operating at extreme levels and buying by ETFs is slowing. Seasonal demand from India is also hitting a low point, blamed on high prices, which rose above the psychological 10,000 rupees per 10 grams level.

But there may be more room for gold to run in the near term, UBS wrote in a note to clients, pointing out that there is a chance that the U.S. Federal Reserve will surprise and cut interest rates by more than 25 basis points at its Oct. 31 meeting. Oil prices, which are climbing toward the US$100 per barrel mark, are also providing a boost for gold...

The firm has been waiting for a correction since gold hit its three-month target of US$750, but there appears to be a reluctance to take profits. Over-the-counter investment, a producer buyback or even sovereign buying were cited as possible reasons for buyers remaining in the market each time gold came under pressure in the past two weeks, but UBS admits the real cause is unknown.

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