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Gold has potential to double: UBS

Posted: March 25, 2008, 12:19 PM by David Pett
Mining, gold
Gold may have eased back from last week’s record high of US$1,030.80 an ounce, but the yellow metal is well positioned for growth and could potentially double in price, Tony Lesiak, analyst at UBS, says in a note to investors.


Mr. Lesiak says gold appears relatively cheap compared to oil on a historical basis, holding the potential for gold to more than double to levels where it will regain its long term average relationship. However, he said the price of gold was hard to call at present and prices may not move much in the coming weeks.


“In the near-term, fundamental value will not mean very much: positioning and the need to raise liquidity will determine what happens to precious metals - and indeed other asset classes,” Mr. Lesiak says.


“This environment is one where gold should do well, although de-leveraging may prevent the metal from moving higher, it should certainly outperform other metals and has a genuine chance of trading much higher should the dollar weaken further and de-leveraging become overwhelmed by safe haven buying.”


In the equity markets, Mr. Lesiak says gold valuations are in “fair territory” following last week’s sell-off.


He says Goldcorp remains UBS’s top stock pick among the senior gold producers due to its low political risk, leverage to gold, excellent internal growth potential, and the possibility of numerous re-rating catalysts in 2008.


Iamgold is the top pick among the mid-tier gold stocks. He says the stock looks to have been overly punished for underperforming, and holds good exploration potential.


Alia McMullen