US1000 in sight as analysts predict another record year for gold
December 29, 2007 Page 1 GOLD will rise to a record price next year, increasing for an unprecedented eighth consecutive year, as investors seek protection from accelerating inflation, metals analysts say.
Gold will probably average $US800 an ounce, compared with $US696 this year, according to a median estimate of 37 traders, analysts and investors. The metal rose 30 per cent to $US824.50 an ounce in London in the year to December 26, its best year since 1979 when the Iranian revolution crippled crude oil exports and US inflation exceeded 13 per cent.
"I do see gold hitting a new high at some point in the first half," said UBS's John Reade, who is tied as the most accurate analyst in the London Bullion Market Association's 2007 gold price forecast.
Gold rose as record oil prices drove up inflation and as supplies from South Africa, the world's biggest producer, dropped to the lowest in 84 years. Mounting losses in credit markets tied to subprime mortgage loans spurred demand for alternatives to stocks and bonds, while the US dollar's drop to a record low against a basket of trade-weighted currencies boosted investors' interest in commodities.
Prices rose to within 0.5 per cent of the record high on November 7. Gold is the second-best-performing metal after lead on the UBS Bloomberg Constant Maturity Commodity Index this year. The index of 26 commodities gained 22 per cent in the year to December 26.
US consumer prices rose 0.8 per cent in November, the most in more than two years. Annual inflation in the 13-nation euro region accelerated to 3.1 per cent in November, the fastest since 2001, according to Eurostat. Japanese consumer prices rose 0.1 per cent in October, the first gain of 2007.
"The two stories for 2008 are going to be the subprime credit crisis and inflationary issues," Ross Norman, director of the London data provider TheBullionDesk.com and a former trader of physical bullion, said.
Gold may climb to "pretty well above $US1000 next year", he said.
Investment demand for gold may "easily" rise to 500 tons, worth about $US13 billion, compared with 384 tons last year, Philip Klapwijk, chairman of the London research company GFMS, said. "We see the investor base for gold widening. We're still talking small numbers compared to equity flows or other assets."
Assets in the StreetTracks Gold Trust, the world's biggest exchange-traded fund backed by gold, rose 39 per cent this year to a record 627.88 tonnes.
The Goldman Sachs International economist James Gutman, who is tying with UBS's Mr Reade as the most accurate forecaster for 2007, said in a December 11 report that gold would drop to $US790 in six months and $US750 in 12 months.
"As the US dollar gains strength once again, the price of gold will, in turn, likely decline," the report said.
The bank recommended selling December 2008 gold futures.
Prices may reach $US1500, easily beating the record high of $US850 set in 1980, the GoldMoney.com founder, James Turk, said.
"Demand for gold as a safe haven won't disappear, even if the economy picks up," Wolfgang Wrzesniok-Rossbach, head of marketing and sales at the German metals refiner Heraeus Metallhandels, said.
"People will still put a small percentage of their portfolios into gold."
Stagnating production may buoy prices. Global output fell to a 10-year low of 2477 tons last year, according to GFMS.
Supply from South Africa declined 7.5 per cent to its lowest level since 1922 as companies were forced to dig deeper and pay workers more.
Gold "is still a positive story, because of mine supply, which continues to be highly constrained", Michael Jansen, an analyst at JPMorgan Securities in London, said.
Prices may gain as much as $US100 in 2008 because of production shortages, said Graham Birch, the London head of BlackRock's natural resources team, which manages $US40 billion.
"The price needs to be north of $US1000," he said. "$US800 is not enough to reverse the gradual decline in production."
The metal may also benefit from continued restrictions on sales by central banks, the biggest holders.
Those sales may slow from 583 tons last year to 495 tons next year, Fortis and VM Group estimated in a report released on December 11.
Bloomberg
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