Oil-spattered goldFor some reason WDG is not moving up, but there's hope.
Oil-spattered gold
By: Erika van der Merwe
Posted: 26-JAN-06
Global investment bank JPMorgan is advising its clients to buy gold, which it says could reach nearly $600/ounce by year-end.
Tight gold supplies, rising investor demand and jewellery demand could drive the metal price to these levels, it says in its latest “Commodity Markets and Outlook” report.
But, should the political tension in Iran blow up, sending the oil price soaring, there is a possibility that gold could reach as high as $800/ounce.
Drawing evidence from similar experiences during the fifteen-month long aggressive intervention by the USA in Iraq, JPMorgan analysts explain that there is a link between oil price movements and gold price changes.
“If a meltdown in Iran took crude to $100/barrel, we see a 35% probability that gold reaches $800/ounce.”
This is linked partly to the likely “influx of petrodollars from the Middle East”, looking for an investment home, and partly to the expected increase in demand for safe-haven assets such as gold. At such times, demand for US dollars wane.
Meanwhile, even if the Iranian situation is defused, tight mining supplies and a slowdown in central bank gold sakes will be enough to keep the gold price lofty.
With what it refers to as a cap on mine supply, the market will look increasingly to non-mining sales to meet demand.
However, it seems that central bank gold sales are slowing: based on the newest information on central bank sales (October 2005), central banks are no longer net sellers of gold.
“By 2007, at current jewellery demand growth rates, the amount of non-mine supply needed to balance the market will be approaching half the mine supply.”
“Or, put another way, mine supply will have to be 50% higher by 2008 if those demand sources are not to rely on investment sales.”
JPMorgan argues that there is no chance that mining production will rise this much by 2008.
It sees the recent breather in the gold price trend as a buying opportunity.
“This round of profit taking has opened up a good entry point to play the gold story and we are optimistic of its potential in coming months.”
https://www.moneyweb.co.za/education/investment_insights/858464.htm
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