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BNP Paribas sees big gold price gains unlikely in H1 2009

LONDON, January 28, 2009 – Bank BNP Paribas said it doubted gold prices would rise sharply in the first half of 2009 because of a strengthening dollar and the lack of any immediate impact from fresh liquidity entering the monetary system due to the economic crisis.

However, the bank said in a research note that gold prices could pick up in the second half of 2009 as cheaper funding will lure investors to the gold market.

“Going forward, we believe that significant gold price gains in H1 ’09 are unlikely for the following reasons:

“The USD should continue to appreciate, which should weigh on gold prices.

“Changes in liquidity and gold prices tend to be highly correlated. Yet, the recent injection of liquidity by central banks is unlikely to have an immediate impact,” BNP Paribas said.

However, gold prices should pick up in H2 ’09 as markets are expected to focus increasingly on rises in liquidity.

“Gold can benefit from that, for instance, because the massive monetary stimulus makes it cheaper for market participants to finance positions,” BNP Paribas said.