RE: "ARU" & "PEZ" & "DMM" &"RR" &""PTS"Tuesday, January 29, 2008
Gold is regaining its status as a safe haven in troubled times, reaching into uncharted territory above $930 an ounce (U.S.) Tuesday on expectations the U.S. Federal Reserve will deliver another hefty interest rate cut Wednesday.
“The commodity market is waiting to see what the Fed is going to do,” said Matthew Turner, an analyst with London-based metals consultancy VM Group. “That is really the short-term focus right now.”
Most traders believe the Fed will follow up on last week's emergency 75 basis-point rate cut with a 50 point cut on Wednesday.
Bullion has staged a stunning 11 per cent jump in the first four weeks of this year, leading some to question whether the precious metal's rally has peaked. Others, however, are issuing even more bullish forecasts.
Clément Gignac, chief strategist at National Bank Financial in Montreal, is calling for gold to hit $1,500 an ounce in the next 12 to 18 months, a 66 per cent rise from his August target of $900 an ounce.
“It's time to revisit our outlook and reiterate our view that gold is poised for a comeback as an investment haven,” he said in a research note, noting that bullion has broken through its January, 1980, nominal record of $878 an ounce.
Although the $1,500 gold target seems lofty, he noted that when adjusted for inflation, it would still be well below the 1980s high, which would be worth about $2,200 today.
Mr. Gignac listed five factors boosting gold: financial instability stemming from massive bank writedowns, large liquidity injections from the Fed, the decline of the U.S. dollar, escalating inflation concerns from a swelling U.S. budget deficit and increased demand for bullion as a distinct asset class.
Gold exchange-traded bullion funds - and gold stocks - have emerged as an attractive way to diversify portfolios in recent years, Mr. Gignac said. “With investors shaken or disappointed by the performance of real estate assets and capital markets, it will be no surprise if this trend continues to swell demand for gold in the years ahead.”
Spot gold prices rose to a record $933.10 an ounce in London. Gold futures for April delivery surged to $939 an ounce on the New York Mercantile Exchange, before falling $2 to close at 930.80 an ounce.
Platinum prices also hit historic levels in Tuesday's session, reaching $1,735 an ounce, while silver hit its highest level in nearly 30 years and agricultural futures climbed.
The threat of a U.S. recession spilling over and weighing down global economic growth, a weak greenback, soaring crude oil prices and geopolitical instability have combined to sent gold prices to new highs almost daily this year, even as stock markets have taken a beating.
Bullion closed 2006 at $636.70 an ounce and finished 2007 at $833.92, a 32 per cent rise.
Gold generally rises when the U.S. dollar falls. It also tends to outperform after a rate cut, as investors and speculators look for ways to hedge against inflation and put their money in alternative, safe-haven assets for better returns.
Mr. Turner says that because the gold market is small compared to other financial markets, it takes just one or two large investors to make a big difference in price. “There are a few large investment funds who have changed their investment portfolio towards gold, but this is not a stampede of millions of individuals.”
Given its rapid ascent, Mr. Turner is less enthused about gold than he was at the start of the year. He expects prices will hit $980 - and could touch $1,000 at some point this year - before drifting back down to around $800.
“There seems to be a growing feeling that a U.S. recession would be good for gold, because the dollar would weaken and interest rates would be cut,” he said. “But no one is that sure - you could also make the case that global demand for gold jewellery in places like India would fall sharply in the event of a U.S. recession or if gold reached $1,500 an ounce.”
With files from Reuters.
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