Thread: Gold price will quickly hit 1000 usd - and has the leg

(AFX UK Focus) 2008-01-14 14:25 GMT:
FOCUS Gold price will quickly hit 1000 usd - and has the legs for more
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LONDON (Thomson IM) - The price of gold has room to go quickly past the 1000 usd per ounce level and there are plenty of factors in play which suggest that it might do so, according to fund managers in the sector - even if they warn that profit taking might offer a sting in the tail for momentum investors.

They note that to hit a record level in real terms the precious metal would have to change hands for close to 2,000 usd per ounce - and they are not yet predicting that those kind of levels are likely.

John Payne, portfolio manager of Hexam Global Resources Absolute Return Fund, told Thomson Investment Management News: "Psychologically, 1000 usd per ounce now has to be a target."

"Gold looks very well-supported. I think the primary driver is concern over the US economy and the weak dollar. Food price inflation, geopolitical concerns and oil near 100 usd per barrel; are all drivers of the price," said Payne.

"People are investing through ETFs. Gold production is declining from places like South Africa, the supply and demand situation looks supportive," he added.

"Gold could reach 1000 usd per ounce in a couple of weeks quite easily. If you look at the March future contract at 920 usd per ounce, 2-3 pct more and you're not that far away... When oil reached 90 usd people tried to push it to 100 usd; it's a psychological level."

Nik Bienkowski, head of listings and research at ETF Securities, agreed that the impetus is there for fresh gains. He told Thomson IM News that the price is being driven by a generally negative outlook in the major economies, with market volatility fuelled by a distrust of balance sheets, lower GDP growth rates, and inflationary pressures from rising food and fuel prices.

"The US Treasury has indicated that it has a negative view on the US and the markets are looking for a 50 basis point reduction in interest rates at the next Fed meeting.

"That would be negative for the dollar and therefore positive for gold," he added.

Bienkowski said that in a 35-year analysis, he found that over a 12-month period, gold would be positive when equities were negative 80 pct of the time. The gloomy outlook for equities is therefore prompting asset allocation rotations out of equities and into commodities, particularly precious metals such as gold, and agriculture commodities.

This morning gold touched 914 usd/oz, but Bienkowski points out that in real terms, this is not a high. "It would need to be closer to 2,000 usd/oz, taking inflation into account, so that suggests there is room for the gold price to keep going up."

He added that supply was also tightening as it was becoming harder to find gold, whilst the US was devaluing the dollar by continuing to print money.

He also points out that access to gold investments have been made far easier over the past year with the issuance of new physically-backed ETFs in Europe. Bienkowski said there is now 25 bln usd invested in gold ETFs globally.

Such ETFs are invested in "allocated gold", which is physical gold held by a custodian on the investor's behalf, but with no credit risk.

Hexam's Payne though offered a warning to investors convinced that this combination of factors will underpin sustained growth in gold prices.

He said there will come a point where investors look to lock in profits, even if some of the fundamentals remain strong: "One has to be quite discerning investing in gold stocks," he said.

"It's quite possible there's further momentum in the gold price and gold stocks but how much longer are you prepared to throw money at it when you've already done very well?"

And Payne has been taken aback a little by the pace of the 'gold rush'.

"I'm surprised about where gold has gone. The March gold future is trading at 920 usd an ounce which I didn't expect. Nor did I expect the spot price to be above 900 usd this quickly."

And he warns: "There's a danger that it's just being pushed up by buying momentum."

"One has to be careful not to chase momentum despite the fact that it looks tempting... At some point there will be a correction and you don't want to be last man in." By James Molony and Claire Milhench: +44 (0) 20 7422 4926/4808; james.molony@thomson.com/claire.milhench@thomson.com. www.thomsonimnews.com jad/jlc

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Citi expects gold to test $1,000 in 2008
Mon Jan 14, 2008 11:18am EST

NEW YORK (Reuters) - Gold prices will test a record $1,000 an ounce this year, boosted by growing investment interest, safe-haven demand and strong market fundamentals, a Citigroup metals analyst said.

"We believe gold has entered a new investment-driven phase, in a much more hospitable macro setting. Catalysts are rotating from safe-haven demand, to currencies, to the re-flation trade, as new buyers enter the market," John Hill, director, metals research, at Citigroup in San Francisco, told clients in a note dated Sunday.

However, Hill also said he believed the broader investor base was not yet involved.

Hill kept his gold forecasts unchanged at $750 for 2008, $800 for 2009 and $820 for 2010.

"Within these ranges, we fully expect a test of $1,000 ounce in 2008," Hill said.

Hill also raised the price targets for shares of Barrick Gold Corp (ABX.N: Quote, Profile, Research), the world's largest gold producer, to $62 from his previous estimate of $48, and to $67 from $54 for No. 2 Newmont Mining Corp (NEM.N: Quote, Profile, Research).

Gold's appeal as a safe-haven investment has increased due to worries of further write-downs among major financial institutions and credit market meltdown in the United States, the world's biggest economy.

In just three weeks, spot gold has jumped nearly $120 to Monday's peak of $914.00 from a bottom of $795.30 on December 21.

(Reporting by Frank Tang; Editing by Walter Bagley)

http://www.reuters.com/article/hotStock ... 0520080114