Spot gold predicted to double in coming months
Purchasing June 27, 2005
Speakers at the recent New York Institutional Gold Conference predict that the price of spot gold could get as high as $850 a troy ounce in coming months from its current level slightly in excess of $425. Some economists contend this means investors are leaning toward the precious metal, and not the dollar, as their speculative hedge against future inflation. The last time gold got anywhere near the projected high was in the late 1970s when out-of-control inflation, unrest in the Middle East and an oil crisis pushed the precious metal from $150 to $810.
Gold has been trading lately 30% above its 10-year moving average on the New York Commodities Exchange, and continues to be priced in proximity of the March 2005 peak of $447. It is oil prices that are really making the gold market look like 1970s redux, with crude oil prices hovering near $60 a barrel. While economists debate whether high oil prices will spark inflation or will slow economic growth by acting as a tax on consumers and businesses, the gold and bond markets have come down on the side of inflation. "The recent run in gold has moved in conjunction with rising crude prices," says David Meger, senior metals analyst at Alaron Trading, in a recent note. Gold prices began to jump higher in the third quarter of last year, concurrent with the latest oil price surge. "Middle East nations are getting more petrol dollars as (oil) prices rise, and they're not putting it back into paper assets," writes Charles de Vaulx, manager of the First Eagle Gold Fund. "They're trying to protect the value of their profits—just like in the 1970s—so they're buying gold." With oil prices so high, some traders believe there's still a considerable upside to gold, despite the fact that some market analysts, like MKM Partners' chief market technician Katie Townshend, say the metal has become overbought in the short term. "Based on historic ratios between gold and oil, gold should now be over $500 an ounce," Frank Holmes, chairman and chief investment officer as U.S. Global Funds, tells the CNN news service. "Or the price of oil needs to come down to $40 to $42 a barrel."
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