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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Richnorth who wrote (92455)	1/5/2003 9:02:12 PM
From: Lalit Jain	Read Replies (1) \| Respond to of 116815

Experts differ over future of gold, dollar G. Chandrashekhar MUMBAI, Jan. 5 OF late, gold prices are trending upwards on concerns of war with Iraq and weakness of the dollar. However, in recent years, investor interest, especially in the western world, has waned perceptibly, throwing a huge challenge to the producers to rejuvenate interest in the yellow metal. Many believe investor interest is as good as dead because the risk-reward profile has gradually undergone changes. It is no mere coincidence that the fall of gold's image as a luxury jewellery has taken place along with its near-disappearance as an investment class. Of course, countries like India with high demand for gold fall in a different category. Gold here serves a dual purpose? it is desired as a jewellery and as an investment which makes for such a high level of demand. It is because of the general perception that gold is losing its sheen as an investment avenue and its high unpredictability is keeping investors away, some startling presentations on gold prices and the status of dollar made at the Euromoney Gold Investment Summit held a few weeks ago attracted attention. According to Prof. Avinash Persaud of State Street, a rise in gold prices above $400 an ounce over the next 12 months was highly probable. State Street handles close to 12 per cent of the world's securities under custody and almost $ 800 billion under management. Arguing that inflation (or deflation), risk aversion and the dollar were the three key factors that determined the price of gold, Prof Persaud pointed out that the dollar had begun to depreciate, against a whole range of currencies including the euro and the yen because there had been a "regime change'' in the foreign exchange market from "growth'' to "yield''. Hence, higher yield in the Euro zone and many other currencies will encourage depreciation of the dollar. Even in Japan, the positive yield spread has narrowed, it was pointed out. So, a marked depreciation of the dollar (at least 20 per cent over 12 months) made Prof Persaud see gold prices rising to $ 400/oz. Interestingly, Prof Timothy Congdon from Lombard Street Research took a different view to dismiss concerns of a significant weakening of the dollar both short-term and even longer-term. He showed that since World War II, the US has moved from having a large balance of payments surplus to an even larger deficit (the goods deficit is 4.2 per cent of US GDP) and is now the world's biggest debtor (around $2,500 billion). Servicing this debt should have resulted in the US's balance on international investment income moving into a deficit of around $125 billion. But, in fact, the US has remained consistently in surplus by around $10-25 billion since 1987. Prof. Congdon's big point was given that US international investments remain more profitable than foreign investments in the US (attributed largely to US investments being directly into companies or operations, while foreign investments were often in US treasuries and deposits), there is not so much pressure for currency depreciation that the balance of payments deficit would normally imply. Such alternate views seem to make the market interesting and somewhat challenging to understand. Observations and forecasts coming from experts help provide new insights into market dynamics and encourage players to look at familiar things from unfamiliar angles.