Gold train 'still on track'
Posted: August 19, 2008, 10:42 AM by Jonathan Ratner
With gold recently trading below US$800 per ounce on continued strength for the greenback, the bullion bulls are making it clear how undersold they think the metal is. Nonetheless, some admit that gold remains vulnerable and prices need to be sustained above US$800 for a few days for the technical situation to improve. Then it can try to rebuild support at key levels between US$800 and US$900.
Meanwhile, committed buyers also need to return before we’ll see a sustainable advance, according to Jeffrey Nichols, managing director at American Precious Metals Advisors. He points to the impact of the credit crunch, which has reduced liquidity available to precious metals traders and speculators as the source of volatility in both directions.
But the economist says seasonal factors like demand from Asia will soon turn positive and long-term price prospects “remain as bright as ever.”
“The schedule may have been set back a few months, but the train is still on track,” Mr. Nichols said, reiterating his forecast that gold will climb above US$1000 per ounce either later in 2008 or early in 2009.
He thinks prices could even climb to US$1500 or US$2000 in the next few years given the right combination of economic and geopolitical events. But this is hardly an audacious forecast, he said, given that gold’s previous high of US$875 in January 1980 is equivalent to roughly US$2300 today when adjusted for inflation.
“We believe the market will be supported by a deteriorating economic situation in tandem with positive supply-demand fundamentals,” Mr. Nichols said, adding that rising wealth in developing nations will more than compensate for any declines from the top industrial nations.
As for investment and hedge demand, he said they will trend higher as a result of monetary policy and global inflation. And mine output is expected to be slow to respond to higher prices along with deteriorating output in South Africa.
“With economic activity slowing and the financial sector still vulnerable to seizing up like an engine without oil, the central banks have no choice but to pursue reflationary monetary policies that will continue to fuel rising prices for gold (and most everything else) for sometime to come,” he added.
http://network.nationalpost.com/np/b...
