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Gold bounces on Mid-East buying...

Gold bounces on Mid-East buying: Gold last week lost 3.2% against the US Dollar, but it has picked up today after a good start in the Asian session...

A senior Hong Kong trader interviewed by Bloomberg cites "physical buying" by Middle Eastern investors "taking advantage of the recent low prices."

"There's sporadic buying," another trader confirmed to Reuters, "and people even think $623-$624 is a good level to buy. Jewellery shops are covering their short positions, and I guess some may be running out of stocks...I think we will hold above $620, unless the Dollar strengthens dramatically."

But trading volume remains thin ahead of the US data for November due out this week:

Today: Wholesale volumes
Tues: Trade balance
Weds: Retail sales
Thurs: Import/export prices
Fri: CPI inflation

These releases "offer important clues to monetary policy outlook," notes the Financial Times says. The US Dollar has now dropped 4% against the other major currencies since October. That will only add to import-price inflation in the US. So while the Treasuary bond market thinks the US Fed will cut its rates by February, analysts at ABN Amro expect US rates to rise and hit 6% next year.

The threat of Dollar-led inflation forcing higher US rates has helped the Dollar regain 4 cents against Sterling during the last 2 weeks. In early Asian trade today, the Euro dropped back to $1.315. Against the Yen, the US Dollar has just spiked to ¥117 from ¥114.50 this time last week.

But can the US Dollar's recovery last? "Gold is the purest play against the Dollar," says Louise Yamada, managing director of Yamada Technical Research Advisors LLC in New York. The former head of technical research at Citigroup Inc., she said in 2001 that gold was cheap at $279, according to Bloomberg. Now Yamada sees gold rising above this year's high of $730 per ounce in 2007. She expects it to reach $3,000 within 10 years from now.

"If you can only make one commodity investment," agrees Peter Richardson, chief metals economist at Deutsche Bank in Melbourne, "gold is the choice for 2007." He notes that in five of the last six Dollar bear markets, gold has risen strongly. So as the US currency continues to tumble in 2007, gold investors are almost certain to benefit.

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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