Gold headed for more record highs in 2008 -- Klapwijk

Gold headed for more record highs in 2008 -- Klapwijk Allan Seccombe Posted: Thu, 03 Jan 2008 [miningmx.com] -- THE gold price is headed for $1,000/oz, with $900 the next big target after it broke the 27-year-old record of $850 on Wednesday because of global financial and political turmoil, while fundamental issues are providing positive underpinnings, said GFMS executive chairman Philip Klapwijk. The all-time high in crude oil prices of $100 per barrel, the sub-prime mortgage crisis, mounting fears about inflation and a weakening US dollar, with political turmoil in Pakistan after the assassination of Benazir Bhutto on 27 December stirred in has created ideal conditions for the gold market to forge higher. Gold hit $868 on Thursday, well above the $850 high set in 1980, and continuing the upward trend that marked 2007 when it gained more than 30%, its largest advance in nearly three decades. $900 as the next target “With the clear breach of $850 we could well see $900 as the next target and that could be taken out quite soon,” Klapwijk told Miningmx in an interview.“It becomes bit of a momentum trade now and if people see this all time high beaten you could see people set their sights on $900 and rally up to that level as an initial target,” he said. “The big figure people now have in mind is $1,000. I’m not sure we go from here to $900 and then, bang, straight up to $1,000. There could be a set back along the way and in a couple of months we’d be looking at a market that’s gone to $900 and then come back down again,” Klapwijk said. It is very difficult to put a time frame on the price movements because it entails a number of factors including the pace of US interest rate cuts, how far the dollar might fall from the current level and whether Pakistan, which owns nuclear weapons, will stabilise. Click Here to subscribe to our daily newsletter However, such a price rise and the volatility in the market in recent months bodes ill for jewellery demand, one of the key offtake markets in the sector. “This is really bad news for jewellery demand,” Klapwijk said of the price outlook for 2008. “At these levels, particularly with the volatility, this is a difficult environment for jewellery demand, even in countries where purchasing powers are still positive.” Gold jewellery demand from China, particularly ahead of the Chinese New Year on 7 February, could have the air knocked out of it if the price moves up to $900, he said. Western jewellery demand is also likely to be hit hard, not only because of the price but an economic slow down in those nations. The factors that drove the gold price higher in 2007 are still in place, with the fundamentals providing a positive backdrop and an underpin that kept prices falling off too sharply last year. Part of the fundamental issues providing support to the market is the fact that mined gold is not really growing significantly as producers struggle to find sizeable deposits to replace their diminishing resources. Central bank gold sales could start slowing in the medium term, Klapwijk said. The current market is primarily driven by economic concerns causing investors to seek safer places and sound returns for their money. Speculators are also catching a ride on the gold market. “The price we are seeing is due to concerns about financial stability because of the ongoing credit market crisis. There are growing concerns about inflation with the huge amount of liquidity created by central banks to keep the financial system working,” Klapwijk said. “Inflation expectations are starting to grow in most countries. Inflation rates are starting to get to worrying levels in most countries, not just the US and European economies, but China where inflation rates close to seven percent,” he added. “There’s the prospect of further dollar declines. The consensus view is the dollar could weaken further, certainly given the high probability of significant short term US interest rate cuts in the next few months as the US economy does seem, I think, to be headed towards recession.”