Gold may zoom to $900-1,000 next year

Gold may zoom to $900-1,000 next year

Driven by weak dollar, high crude oil prices

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Prospects

In the short-term, there can be a correction in gold's price after which it would revisit $850.

A strong selling across asset classes is negative for the metal.

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Gargi Shah

Mumbai, Nov 20 The year 2008 could prove to be a landmark for gold prices as they are poised reach a new high of between $900 and $1,000 an ounce. This was the expert consensus reached at LBMA Precious Metal Conference 2007 here.

Factors

Factors that would encourage investment in the precious metal will be the weakening of the dollar, followed by higher oil prices, global financial security concerns, geo-political and inflation concerns, according to the net consensus of the experts at the conference.

Today's factors that are responsible for taking gold prices higher would continue to remain through the next year, as there was no quick solution to those problems, said Mr Kamal Naqvi, Director – Commodities, Credit Suisse Inc.

However, before the year ends, the yellow metal might witness a further short-term correction and year-end profit booking before the widely expected rally will take off. Yet, experts assert gold will re-visit its all time high of $850 towards the year-end.

The market should consolidate at $750/oz after which the new high will be reached in the first quarter of next year, with current volatility not exceeding 20 per cent, said Mr. David Holmes, Director of London based Dresdner Kleinwort Ltd. "I don't see relief in any commodity prices through the next year including in oil," he said.

Short-run

In the short run (2-4 weeks), there can be a correction after which in December prices can climb back to $850/oz and then zoom to $1000 in 2008, said Mr Philip Klapwijk, Executive Chairman of GFMS.

Mr Tom Kendall, precious metals strategist at Mitsubishi Corp (UK) Plc said gold prices that saw a $12 dip on Monday was mainly linked to the equity and the forex markets.

According to Mr Kendall, conflicting forces are at work in the bullion market. While gold will stand to benefit from the nervous equity investors as a safe haven asset, it may also be a victim of the wide spread sell off when investors need to have cash at hand, added Mr Kendall.

Thus while weaker dollar is positive for gold weakening oil prices, strong selling across asset classes is negative for the metal.

If gold breaks $850/oz then it can be seen going for $880 –900/oz next year, said Mr. Kendall.

The current positions of the players in the market are profitable i.e. they are long gold and short on dollar, said Mr Simon Weeks, Director – precious metals & FX of Scotia Capital.

While year-end prices to be near $820/oz, next year gold can reach $1000/oz, said Mr Weeks.

Banks' sale

Central banks only sold 352 tonnes in 2006 whereas under the CBGA (agreement amongst the sovereigns to sell sold) they could have sold 500 tonnes. This is a positive signal for the precious metal, said Mr James Burton, Chief Executive Officer of the World Gold Council.

Producer hedging in the yellow metal has also declined to 29 million oz from around 110 million oz back in 1999, shared Mr Raymond Key Managing Director – Global Commodities of Deutsche Bank in his presentation.

According to Mr Key credit risk in the global market took the prices to new scales in the last two months. He sees prices to average around $825/oz in 2008.