National Bank Changes Its View On Gold
December 16 2005 - Australasian Investment Review – (AIR)
This is my last story for the year, and its fitting that the topic should be one which has become one of the most discussed stories of 2005 – has the gold price broken away from its currency relationship?
Economists and gold-watchers have ummed and ahhed about this one for months. One minute gold breaks away in a seemingly independent rally, only to be clipped at the heels once more by the weight of its long-standing converse price relationship with the US dollar, and the dollar’s surprising strength (another major topic for 2005).
Well the recent explosion through US$500 resistance appears to have settled the score for many. National Australia Bank economists are among those who believe gold now has a mind of its own.
NAB economists have "fundamentally changed" their view on gold – given a sustained decoupling of gold prices from exchange rates driven by stronger demand as well as investor diversification away from both the US dollar and Euro. They no longer expect gold prices to return to the exchange rate relationship in the short term – with supply and demand fundamentals and other macroeconomic factors driving gold higher.
NAB suggests that since June, gold markets have been extremely bullish – with prices rising across currencies. The previous growth in US dollar gold prices had been largely currency related, rather than reflecting underlying fundamentals.
However, rising investment demand, potential central bank purchases (especially the South African, Russian, South American and Asia banks) and heightened inflation concerns (related to high energy costs) have driven US dollar gold prices to a 24 year high. These factors will continue to drive gold prices higher in the short term, says NAB.
As a result, NAB’s forecast gold prices have been revised upwards, with gold averaging US$532 an ounce in 2006, an increase of 19.3 %.
Merry Christmas and a Happy New Year to all AIR readers from Greg (He doesn't have an editorial, therefore he was allowed to take the last sentence of his last story for the year).
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