Some ReadingGold May Rise to $700 as Iranian Tensions Spur Demand for Haven
By Pham-Duy Nguyenr
Feb. 26 (Bloomberg) -- Gold prices may rally for the eighth consecutive week as mounting tensions over Iran's nuclear program spur investor demand for a haven.
Twenty of 27 traders, investors and analysts advised buying gold, according to a Bloomberg News survey of participants from Mumbai to Chicago on Feb. 22 and Feb. 23. Gold last week rose 2.1 percent to $686.70 an ounce, the highest in nine months. Two respondents recommended selling, and five said prices will be little changed.
Gold jumped 3.5 percent on Feb. 21, the most since June, partly because Iran defied a United Nations Security Council deadline to halt uranium enrichment. The U.S. says Iran, the Middle East's second-biggest oil producer, plans to build a nuclear bomb. Iran says it wants to develop power plants. The Security Council today will discuss possible sanctions.
``The smart money is piling into gold before something transpires in Iran,'' said Ralph Preston, a senior analyst at Heritage West Financial Inc. in San Diego. ``We're seeing a bout of safe-haven buying.''
Gold futures for April delivery gained $13.90 an ounce last week on the Comex division of the New York Mercantile Exchange. A majority of analysts surveyed from Feb. 15 to Feb. 16 anticipated the increase. The Bloomberg survey has forecast the direction of prices accurately in 91 of 148 weeks, or 61 percent of the time.
The seven-week rally is the longest since the nine weeks ended May 12, when gold reached a 26-year high of $732 an ounce. Iran's announcement in January 2006 that it had begun to enrich uranium prompted some investors to buy the precious metal, which has gained 25 percent in the past 12 months.
IEA, Iran
The International Atomic Energy Agency on Feb. 22 said Iran has expanded its capacity to enrich uranium. Iranian President Mahmoud Ahmadinejad said his nation won't stop its nuclear development.
Some investors buy gold to hedge against turmoil in financial markets. The Dow Jones Industrial Average fell close to 1 percent last week, the most since August, partly because of concern the UN dispute with Iran will escalate. Gold jumped 4.4 percent on Sept. 14, 2001, after Comex trading resumed following the Sept. 11 terrorist attacks in New York and Washington.
``Historically, gold has done well in periods of turmoil,'' said Stewart Flerlage, managing principal at NuWave Investment Corp., a $500 million hedge fund in New York that invests in commodities. ``Gold tends to do better when things are financially unstable.''
Escalating tensions in the Persian Gulf region may drive crude-oil prices higher, increasing gold's appeal as a hedge against inflation, analysts said. A separate Bloomberg survey shows a majority of analysts and traders expect oil to gain this week. Crude climbed almost 3 percent last week.
Toward $700
``Gold is again looking toward oil and the impact higher energy costs will have on inflation,'' said James Moore, an analyst at London-based TheBullionDesk.com. ``The fact that we have cleared $676 should give gold the legs to reach $700.''
Gold sometimes moves in tandem with oil as investors buy the metal to preserve purchasing power. Gold surged to a record $873 an ounce in January 1980, after Iran cut petroleum supplies, doubling the cost of crude in a year and sending the inflation rate to 13 percent.
``Inflation rates are going to continue to rise,'' Pierre Lassonde, vice chairman of Newmont Mining Corp., said on Feb. 22. ``We are going to see at least 12 to 15 years of a bull market in hard assets. This is far from over.''
Gold may climb as demand outpaces supply. Barrick Gold Corp., the world's biggest producer, and Newmont, the second- largest, said last week output will drop this year from 2006. Investment demand for the metal jumped 7 percent in 2006, the producer-funded World Gold Council said.
`Back to Commodities'
Investment in exchange-traded funds backed by physical gold jumped 27 percent last year. Total investment in the funds climbed to a record $13 billion as of Feb. 22, led by StreetTracks Gold Trust, the largest. StreetTracks has gained $937 million, or 10 percent, to $10.2 billion this year.
Funds have tended to bet commodities will fall, ``and that's turning around,'' said William O'Neill, a partner at Logic Advisors, a commodity research firm in Upper Saddle River, New Jersey. ``There's a clear trend back to commodities.''
Gold's rally may stall, said some analysts who study price charts. The seven-day relative-strength index surged above 70 on Feb. 23, a sign the metal is poised to fall.
``I can't help feeling that, short-term, gold is just a little overdone,'' said Adrian Day, president of Annapolis, Maryland-based Adrian Day's Asset Management, which has $113 million in assets. ``A pullback would not be unexpected, nor would it disturb my longer-term fundamental bullishness.''
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net
Last Updated: February 25, 2007 12:00 EST
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