Sparkle in gold price forecast for '08

Sparkle in gold price forecast for '08
Dec 30 2007 04:22 PM
Johannesburg - Gold will rise to a record high in 2008, increasing for an unprecedented eighth consecutive year, as investors seek protection from accelerating inflation, metals analysts say.

Gold will probably average $800 (about R6 000) an ounce, compared with $696 this year, according to the median estimate of 37 traders, analysts and investors surveyed by Bloomberg News. Gold has gained 30% to $827.20 an ounce in London this year, its best year since 1979, when the Iranian revolution crippled crude-oil exports and US inflation surpassed 13%.

"I do see gold hitting a new high at some point in the first half," said UBS AG'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 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 dollar's drop to a record against a basket of trade-weighted currencies boosted investor interest in commodities.

Gold is the second best-performing metal, after lead, on the UBS Bloomberg Constant Maturity Commodity Index this year. The index of 26 commodities is up 23%. US consumer prices increased 0.8% in November, the most in more than two years. Inflation in the 13-nation euro region accelerated to 3.1% in November, the fastest since 2001, according to Eurostat. Japanese consumer prices rose 0.1% in October, the first gain of 2007.

"The two stories for 2008 are going to be the subprime credit crisis and inflationary issues," said Ross Norman, director of London-based data provider and a former trader of physical bullion. Gold may climb to "pretty well above $1 000 next year", he said.

Investment demand for gold may easily rise to 500 tons, worth about $13 billion, compared with 384 tons last year, said Philip Klapwijk, chairman of London-based research company GFMS.

'Investor base to widen'

"We see the investor base for gold widening," he said.

"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% this year to a record 627.88 metric tons.

Goldman Sachs International economist James Gutman, who is tied with Reade as the LBMA's most accurate forecaster for 2007, said in a December 11 report that gold will drop to $790 in six months and $750 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 $1 500, surpassing the all-time high of $850 set in 1980, said founder James Turk.

'Demand won't disappear'

"Demand for gold as a safe haven won't disappear, even if the economy picks up," said Wolfgang Wrzesniok-Rossbach, head of marketing and sales at Germany-based metals refiner Heraeus Metallhandels.

Stagnating production may buoy prices. Global output fell to a 10-year low of 2 477 tons last year, according to GFMS. Supply from South Africa declined 7.5% to the lowest 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", said Michael Jansen, an analyst at JPMorgan Securities in London.

Prices may gain as much as $100 in 2008, because of production shortages, said Graham Birch, the London-based head of BlackRock's natural resources team that manages $40bn.

"The price needs to be north of $1 000," he said. "$800 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 to 495 tons next year from 583 tons last year, Fortis and VM Group estimated in a report on December 11.

- City Press/Bloomberg

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