Gold Price on Track toward $1,300

 

 

 

 

By Melissa Pistilli—Exclusive to Gold Investing News

The fall is quickly approaching and Tuesday’s price action gave investors a slight tease of what the traditionally gold-friendly season has in store this year.

After posting some rather modest gains Monday, the price of gold rallied to high of $1,251.20 in New York Tuesday morning. The yellow metal finished the trading day at a healthy $1,248.70 an ounce on the COMEX.

Gold has jumped 5.4 percent in August, the greatest monthly gain since April. Many analysts feel the precious metal is on track to test the record high of $1,266.50 an ounce posted in June.

Equity markets have performed poorly recently as worries over a possible double dip recession have continued to grow. According to Bloomberg’s Pham-Duy Nguyen, the MSCI World Index of stocks is on track for the biggest monthly decline since May, falling 4.4 percent for the month of August.

The usual suspects—fear-induced investment demand and gold-hungry Asia—are still driving the gold bus home for the metal’s fans.

“Gold will remain robust during 2010 as a result of accelerating demand from India and China, as well as increasing global investment demand driven by continuing uncertainty over public debt and economic recovery,” said the World Gold Council (WGC) in its Gold Demand Trends report for Q2 2010 released last week.

The WGC report showed total global demand rose 36 percent from last year’s Q2 to 1,050 tonnes, due in large part to a 118 percent increase in investment demand. Concerns over lagging economic recovery and likelihood of a double dip recession have caused many investors worldwide to turn to safe-haven gold.

“Gold is the primary beneficiary of this general angst over the economy,” said Matthew Zeman, LaSalle Futures Group metals trader. “The flight-to-safety bid is back on, and Treasury yields are a joke now. That’s a good setup for gold to go higher.”

Bloomberg’s Nicholas Larkin listed off a number of economic indicators likely giving investors the shakes this past week: in July, U.S. new homes sales slipped to an all-time low; in the second quarter, U.S. economy grew at a meager annual rate of 1.6 percent; economists expect U.S. growth will slow to 2.8 percent next year, compared with 3 percent in 2010, “according to the median of as many as 69 economists’ forecasts compiled by Bloomberg.”

 

India’s Buying Season Starts

Ironically, while the weak economic outlook in the U.S. is providing support for higher gold prices, so is India’s commanding economic growth.

The world’s biggest gold consumer posted an economic growth rate of 8.8 percent for the Q2 2010, mainly due to gains in the manufacturing sector that saw growth of 12.4 percent for the quarter. Growing economic strength means Indian buyers will have more cash going into the traditional gold jewelry buying season, which began last week with Raksha Bandhan and continues into November with the festival of Diwali, which leads into the wedding season of November to December and late March to early May.

Indian gold imports are expected to surpass 2009 levels, according to the National Spot Exchange Ltd, with purchases totaling 600 tons compared to an estimated 480 tons last year. The Asian nation’s demand for gold bullion nearly doubled in the first half of 2010 to 365 tons, noted the WGC report, and should hit the 2009 level in September.

While jewelry demand continues to be the major player in total demand from India, posting a gain of 67 percent in the first half of this year, investment demand has more than tripled in the first half of 2010 to 92.5 tons, according to the WGC.

Gold exchange-traded funds (ETFs) are quickly becoming a hit in India’s investment community. The country boasts seven such funds with a total of $420 million in assets as of July 30th, which is more than twice as much as last year, says the Association of Mutual Funds in India.

“Gold held by exchange-traded funds in India, the world’s biggest buyer of bullion, may surge as much as 17 times in the next three years as investors seek a refuge from financial turmoil and inflation,”  reports Madelene Pearson of Bloomberg. “Indian gold funds have gained an average 19 percent in the past 12 months, compared with a 25 percent jump in local prices, Bloomberg data show.”

 

Price Forecasts

The bulls lead the charge in gold price predictions with price ranges trending in the $1300s by the end of this year.

GFMS Ltd. analysts view economic woes, currency crises and inflation as forces pushing investment demand, which could help gold reach the $1,300 level in 2010. Goldman Sachs agrees with that estimate as does Peter Hillyard, head of metal sales, Europe at ANZ. “People are fearful enough of what else is going on in the economy and that is sufficient to justify what is going on in gold,” said he said. “It’s a bit of a continuation of what is going on in other markets with month-end and I think $1,300 is on the cards…certainly for September.

Gold’s 10th year overall rally is expected to continue into 2011, according to many analysts forecasts. Landesbank Baden-Wurttemberg analyst Thorsten Proettel, billed by Bloomberg as “the most-accurate forecaster in the first quarter,” is looking for highs of $1,350 an ounce next year. Anne-Laure Tremblay, BNP Paribas SA analyst, also hailed by Bloomberg as a star forecaster, puts 2011’s high at $1,370 an ounce.

Another analyst on Bloomberg’s dream team of gold forecasters, Commerzbank AG’s Eugene Weinberg sees the yellow metal scoring a high of $1,400 in 2011. And Deutsche Bank’s Dan Brebner says $1,550 an ounce next year is a possibility.

More contrarian price views do exist. Jan Nelson, CEO of Pan African Resources (LON:PAF), believes the precious metal will trade between $1,000 an ounce and $1,200 an ounce in the next year. “We would obviously be happy if gold prices continued to go up, but we do believe prices are set to stay in this range in the next year,” Nelson told Dow Jones Newswires.

While National Bank analysts are reasonably bullish on gold prices in 2011, with an outlook of $1,300 an ounce, its analysts believe prices will fall to $950 by 2014.

Rising gold prices over the past year have triggered a tsunami of M&A activity in the gold mining sector as larger mining firms buy up their junior counterparts in a race to build up shrinking reserves and take advantage of record prices. According to Bloomberg data, “gold companies have completed or are evaluating $37.5 billion of acquisitions this year, more than double last year’s total.”

Community Talk

Re: Gold Price on Track toward $1,300

Everyone was calling for a consolidation in gold this week. I'm ok with a couple buck retracement lol. Nothing like what the bears were calling for lol. Let them bash they're just shorters or people who've missed out.

Re: Gold Price on Track toward $1,300

I only buy the big ones but the junior stocks in gold will follow when risk tolerance increases again or the big caps have topped out. There is still room for growth in the big caps so the junior stocks have to wait their turn.

Re: Gold Price on Track toward $1,300

Chiro -  I have found that Jr. Gold Mine which I expect will go through the roof very soon.   They have the goods & the infrastructures are in place -  just need the financing now to EXPLODE.    Moved up nicely this past week.

    Good luck with your search!

Re: Gold Price on Track toward $1,300

I have noticed that it doesn't matter what gold goes to...it is tough to make money trading gold stocks. The blue chip golds build a premium into the share price well in advance of any rise and the share price falls well in advance of the public realizing why. You better be awfully good if you play with the big boys.  Junior golds can go thru the roof very quickly by pulling a couple of good holes. I have my eye on one at the moment but I may have to wait till spring before it is drilled. Find one and follow it closely.

Re: Gold Price on Track toward $1,300

ED MINNEMA

Dangelo, first you must get your facts straight, as I am the blogger, but I did not write the article, see, the names are different, I just posted the article. Now, your statement is coreect, if you just go out and buy physical gold. If you want to make real money, invest in a gold company or buy your own gold property, simple.

ED MINNEMA

Re: Gold Price on Track toward $1,300

ED MINNEMA

Dangelo, first you must get your facts straight, as I am the blogger, but I did not write the article, see, the names are different, I just posted the article. Now, your statement is coreect, if you just go out and buy physical gold. If you want to make real money, invest in a gold company or buy your own gold property, simple.

ED MINNEMA

Re: Gold Price on Track toward $1,300

What a profound statement this blogger made. I am so shocked the writer would put his kneck out there and say that gold will actually go to 1300$. That would be like a 4% increase. My god that's amazing!

This gold to $1300 is boring, show me where i can make real money.

Gold could double over the next 5 Years!

Gold Could Double over Five Years – Headed Higher with Government Resentment: Holmes

03 September 2010, 3:02 p.m.
By Daniela Cambone
Of Kitco News

http://www.kitco.com/

Editor's Note: Catch Frank Holmes at the upcoming Kitco
Metals eConference September 12-13, 2010. A not-to-be missed event
featuring Ron Paul, Marc Faber and other industry heavyweights. The
eConference is free with Pre- Registration
www.kitcoeconf.com.

Gold has the potential to double within the next five years,
and if governments stumble with their policies, it can go even higher,
said Frank Holmes, CEO of US Global Investors.

“When Obama gave money to stimulate job creation, a lot of that
money went to State governments and not into the private sector, where
it was really needed most. Now we’re dealing with a high unemployment
rate that won’t go down, which is leading to increasing anger that you
can see in the approval numbers. If that was to accelerate then you
could see gold taking off faster,” Holmes said in an interview with
Kitco News.

“I think that gold can double over the next five years,
comfortably; that is a 15% compound on rate of growth. And that is what
I’ll stick to,” he said. “There are not many asset classes that can
demonstrate that,” Holmes said.

He said, “If you are a linear person and you use linear models -
gold should be at $50,000 an ounce.  If you go to inflation adjusted
prices then gold should be at $2,300,” he said.
Holmes’ firm tracks government social programs to determine
whether they are based on social investing or social welfare.

“Giving out food stamps does not create jobs; it creates a
society addicted to government checks.  That’s not sustainable – a
society that turns around and starts updating all their roads (and
)airports is,” he said.

“Why not update the L.A airport? Build a speed-train from LA to
San Francisco and create 1 million jobs. Why not re-do the roofs in
New York so that they are white and not dark asphalt and they will use
less CO2 and create a million green jobs?” he questioned.

When you create programs such as these you have job creation, said Holmes.

“That is what the Chinese have been focused on; social spending
for infrastructure versus social welfare.”  They're very conscientious
in fine-tuning social stability and job creation year after year, he
said.

Instability

The operative word for investors is “instability,” said Holmes.
“When fiscal and monetary and social policies are misaligned then the
currency goes through a period of inflation or deflation and if that is
strong enough that all of sudden gold performs.”

During 1997-1998, when President Clinton was in power the U.S. 
had a surplus and maintained positive interest rates,  said Holmes.

“President Clinton had 3% interest earned above the
inflationary rate and you had a surplus budget, gold was $250 an ounce,
unattractive as an asset class,” said Holmes. “Today, we have the
opposite, we have massive deficits and we have negative real interest
rates.”

Holmes also subscribes to an opposite view that many analysts
hold, that the gold price will not rise without inflation. “I know it
is concept that opposes the conventional opinion,” said Holmes.  

“When you are earning less on your 90-day piece of paper or a
five-year note and it is less the inflationary rate, then all of a
sudden gold is attractive as an asset class,” said Holmes.

During these periods, governments usually need to increase
their deficits by escalating their borrowings to support the economy.
This also supports gold as safe money, in addition to its beauty as
jewelry, he said.

The twin engines of negative real interest rates and government deficits tend to make gold a very attractive investment.

“If deficit spending looks like it is sustainable and you have
low interest rates to fight deflation then gold performs, because you
get currency devaluations.  History is just replete with it,” he said.  

Emotional Buying

Holmes said it is in the seven most populous countries in the
world where you find the strongest emotional attachment to the metal.

In September we usually see the emotional buyer emerge during Ramadan, Diwali, Christmas and then Chinese New Year. 

“You have a different proclivity. Now we are half-way through
the holy month of Ramadan and then we go into the wedding season, these
are very significant factors,” said Holmes.

 
While some analysts are concerned that the high gold prices
might discourage buyers, Holmes said it is more important to look at
price volatility.

“We have seen that any time gold spikes $100 dollars, the
demand drops. Anytime gold drops $100 dollars quickly, the demand heat
picks up and these countries act on the emotional giving factor,” he
said.

Central Bank Buying

India’s central bank gold buying was a pivotal point for the metal last year, said Holmes.
“Not only are they huge consumers for retail, all of a sudden
they are making another decision and moving from price takers to price
makers,” he said.

Holmes said that there are two types of buyers of gold: one, he
terms the price takers, who are "basically a buyer of gold for
jewelry."  The second group, he calls the price makers. These are
people who are buying gold as an investment.

“Gold is clearly becoming an important part of that, and I
think that phenomenon will grow. As it does, we will see gold trade at
higher prices,” he said.

Another tipping point for gold was in 2005 when Russia decided
to take 5% of foreign exchange revenue from oil and redeploy that back
into gold as a reserve, said Holmes. “Gold basically hasn't traded
below $500 since then.”

However, while some comments have been made that gold is
currently acting as the ultimate currency, Holmes does not agree. 

“I don’t look at it that way.  I look at it as having a
diversified portfolio, having exposure to gold and rebalance – don’t
try and chase the performance. Don’t buy gold to get rich. Just like
you don’t buy car insurance to hope you can get into accident just so
you can collect.” 

By Daniela Cambone dcambone@kitco.com