Aug 12

Written by:
8/12/2010 10:31 AM 

By Cynthia Lin | MarketWatch

NEW YORK - Gold futures held steadily above the $1,200-an-ounce mark Thursday, gaining more than 1 percent. Just off its session high, gold for December delivery recently changed hands at $1,215.30 an ounce, up $16.10, on the Comex division of the New York Mercantile Exchange.

"All of a sudden gold has a bit of a safety flight going on for it with the equities a lot shakier than ... a few days ago," said Frank Lesh of FuturePath Trading in Chicago. He sees upside potential for the metal to $1,235 an ounce.

Despite the recent strengthening of the dollar, gold prices were buoyed by their safe-haven appeal as investors reacted to soft economic data coming out of the U.S. and China.

"What you're seeing here are two crowds buying in," said senior analyst Adam Klopfenstein at Lind-Waldock. "We're rallying off the flight-to-quality crowd with short-term developments," while what he called the "long-term buyers" are keying on expectations for inflation down the line.

Meanwhile, continued increases of physical holdings in exchange-traded products - as reflected in five straight days of inflows - also have served to prop up the precious metal's price, according to analysts at Barclays Capital.

Physical demand from India, the world's largest market for the consumption of gold, is expected to perk up as well with the coming of festival season.

Looking ahead, analysts at Goldman Sachs said they consider gold to be oversold and project its price to hit $1,300 an ounce in the next six months.

Additionally, Goldman economists expect the Federal Reserve to return to quantitative easing late this year or early in 2011, something that would have the effect of further supporting gold prices. 

"We believe that a return to quantitative easing could act as a strong catalyst to carry gold prices to higher levels," they said in a note issued Thursday.

Richcomm Global analyst Pradeep Unni also sees gains in store for gold.

"Gold has climbed 9.3 percent this year and is set for its 10th straight annual advance," Unni said.