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Saturday, October 4, 2008

Gold's role as a haven should persist.

MATT WHITTAKER, Barrons, 10.4.08

Even with sharp price moves, gold's role as a haven should persist.

...The rescue plan has dissipated some of the sharper ups and downs of gold's moves, with the metal giving back some of its gains in recent sessions...

Short-term, volatility in gold pricing -- while it may not remain at September's levels -- is likely to persist, as participants mull details of the plan to backstop markets. But the medium- and longer-term implications of Washington's market-rescue plan for the metal will also hinge on the reactions of the U.S. dollar and inflation.

Indeed, if the rescue works longer-term, it will likely prove supportive of the U.S. economy and the U.S. dollar, says Carlos Sanchez, precious-metals analyst with CPM Group. That could make for some declines in gold, he said -- but any effect of that nature is at least three to six months out.

During that time, there will be continued uncertainty about whether the plan is improving the economy and credit conditions, leaving gold to remain supported -- and volatile -- on safe-haven flows, Sanchez says...

Even if the U.S. monetizes only some of that debt...that will add to rising inflationary pressures down the road, factors that are likely to remain bullish for gold as a hedge against rising prices...

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