WHY GOLD WILL GO BALLISTIC - READIran and Nigeria push oil higher
>By Chris Flood and Ishita Ayan Dutt
>Published: January 16 2006 09:35 | Last updated: January 16 2006 18:13
>>
Nigeria and Iran cast a deepening shadow across commodity markets on Monday, pushing oil and gold higher.
Following an attack by militants on one of Royal Dutch Shell’s facilities in Nigeria, the company evacuated staff from four oil production platforms and said it was considering a total staff withdrawal from the west of the country’s delta region.
“The current spate of attacks does seem to be a significant escalation and is creating the impression that the security of Nigerian exports is being compromised,” said Kevin Norrish of Barclays Capital.
IPE February Brent rose 64 cents to $62.90 a barrel while the US markets were closed for the Martin Luther King holiday. Tensions over Iran’s nuclear programme also boosted prices.
“The situation with Iran has raised the volatility of both oil and gold. People are now talking about the possibility that oil could go to $80 a barrel and asking what the reaction will be in the gold market,” said Jon Bergtheil, metals strategist at JPMorgan.
Gold pushed through the $560 level, rising 0.9 per cent to $561.70/$562.50 a troy ounce. There is growing evidence that Middle Eastern investors are recycling petrodollars into other commodities and targeting precious metals.
There was talk on Friday of a significant buyer in the gold market, possibly a Middle Eastern central bank. Diversification of foreign exchange reserves by central banks into other assets is expected to provide further support for gold.
China announced over the weekend that its foreign exchange reserves had increased to a record high of $819bn.
“This underlines the potential significance of China’s asset allocation decisions in driving global financial markets,” said Julian Jessop, chief international economist at Capital Economics.
Gold sentiment has been encouraged by recent rumours that the Chinese central bank may have already amassed more than 1,000 tonnes of gold reserves, far higher than the 600 tonnes reported in June last year.
Upward momentum in metals prices also is being supported by new money entering the market. Bloomsbury Mineral Economics estimated that investment by commodity index funds could rise around $80bn to $105-$115bn by the end of 2006 and to $140-$150bn by late 2007.
Platinum rose 1.4 per cent to $1,047 a troy ounce after hitting a record $1,049 with a supply deficit forecast for this year while the growing popularity of low emission cars is expected to support demand.
Copper remained strong at $4,595 a tonne, just short of Friday’s record close of $4,615, while zinc traded 0.8 per cent firmer at $2,077.5 a tonne after it hit a fresh record high of $2,089, supported by a further 1,750 tonne decline in LME inventories.
Lead rose 2.8 per cent to $1,237.5 a tonne helped by talk of strong demand from the US industry battery sector. Aluminium edged 0.1 per cent lower to $2,409.5 amid speculation that plans by Chinese smelters to reduce output because of high raw materials costs were just an attempt to talk the market down.