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Analysts foresee $1,000 gold
Quote:
Analysts foresee $1,000 gold
SHIRLEY WON
FUNDS REPORTER
November 7, 2007 at 6:49 AM EST
All that glitters these days is the price of gold.
After surging $12.60 (U.S.) to close at $823.40 an ounce in New York yesterday for the first time since 1980, some analysts and fund managers are now calling for the yellow metal to hit $1,000.
Gold's record high of $850 per ounce is again within reach. "I think we are days away rather than months away," said John Ing, president of Maison Placements Inc.
"Then I have an interim target of $1,000 an ounce" that is possible within the next 12 months, before attempting the next leg onward to $2,200, the veteran gold analyst said.
As gold nears its record high of $850 a ounce, analysts suggest a weak U.S. economy coupled with strong demand for the metal could push the price to about $1,000. (Reuters)
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Observers say the soaring gold price is being fuelled by a weaker U.S. dollar, the dynamics of supply and demand, and a rising oil price that jumped $2.72 to a record close of $96.70 a barrel yesterday in New York. (Adjusted for inflation, the 1980 record gold price would be worth more than $2,000 today.)
Gold has rallied since the U.S. Federal Reserve Board last week cut its key interest rate to 4.5 per cent - its second move in two months to deal with a worsening economy caused by a housing market collapse.
"The Americans have lowered interest rates to help Wall Street, [which] is mired in credit problems stemming from the subprime mortgage woes," Mr. Ing said. "That has caused the U.S. dollar to continue to fall."
This makes gold more attractive than paper currencies as a safe haven or hedge against inflation.
"There is another 20 per cent correction left in the U.S. dollar," that will drive gold to $1,000, Mr. Ing said.
Charles Oliver, a fund manager at AGF Management Ltd., said he believes that gold can hit $850 an ounce before year end. And the metal could reach $1,000 earlier than his previous call for 2010, he said.
"I wouldn't be surprised to see it in early 2008 or early 2009," said the manager of the AGF Precious Metals Fund. "I have been a big believer that there is going to be a big devaluation of the U.S. dollar, and that is continuing. If you look at the price of gold it usually rallies when the Federal Reserve is lowering rates."
The gold price will also get a lift from its declining supply because of "significant underinvestment" in new mines, while demand has increased from India and institutional investors moving into hard assets, Mr. Oliver said.
Credit Suisse analyst David Davis forecasts gold to climb to $1,050, but by 2012. "Higher oil prices are likely to result in inflationary pressures in the United States," and that will push up the gold price, he wrote in a report.
Fund manager Benoît Gervais of Mackenzie Financial Corp. expects the metal to hit $1,000 in the next 18 months.
"We are moderate bulls," said Mr. Gervais, who co-manages the Mackenzie Universal Precious Metals Fund in addition to other resource and Canadian equity funds. "When you look at it in Canadian dollars, it hasn't gone up all that much. And the cost of producing the gold is up a lot so the profits are not up at all."
While having exposure to gold is a good "insurance marker" to protect one's purchasing power, investors don't need to invest in the metal to do so, Mr. Gervais said. "We would argue that very good companies with good franchises will do just as well."
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