London (Platts)--16Jan2009
Gold, the traditional safe-haven asset-class in times of economic
uncertainty, hasn't responded as well to the current downturn as many,
especially those holding long positions in the precious metal, would like.
Still, perhaps there is some light at the end of the tunnel as a clutch of
commentators believe that the yellow metal has the potential to return to
$1,000/oz in 2009.
A trader from a major European bank told Platts: "I do think gold overall
can go much higher -- yes." He added, when prompted when a return to higher
levels could occur: "Timing it as a day trader is hard -- in fact it's almost
pointless having a six month view when you are trading intra-day. However, I
except I would sell upside gold calls for the second half of 2009. The option
market is suggesting that's the case - i.e. the volume skew is very strong to
upside strikes."
On Thursday precious metals consultancy GFMS released its latest report
on the gold market, Gold Survey 2008 -- Update 2. The consultancy's Chairman,
Philip Klapwijk, gave a summary of the report's findings at a seminar in
Toronto. In the presentation he noted the possible return to above $1,000/oz
for gold.
Looking ahead, the precious metals consultancy expects renewed price
strength in 2009 and the gold bull market to remain in place. A combination of
aggressive fiscal policy and short term interest rates at historically low
levels in the United States and other major economies are set, according to
GFMS, to result -- at some future point -- in a resurgence of inflationary
threats. Additionally, as foreign creditors grow increasingly alarmed over the
burgeoning US fiscal deficit and the country's monetisation of debt, the
consultancy sees a potential for official inflows into the US government debt
market to weaken, an event that would substantially undercut support for the
dollar.
This, coupled with the ongoing environment of negative real interest
rates, GFMS believe, should prove highly supportive of gold. Furthermore, as
the global economic downturn continues to erode corporate earnings, the report
highlights that interest in alternative assets may again be bolstered basis
the deteriorating backdrop for equity markets.
GFMS concludes that once fund selling linked to investor redemptions and
the like abates, a portion of the large amount of capital that is presently
side-lined could well be invested in gold amidst a rise in fresh speculative
interest, with this wave of new investment possibly fueling a price rally that
could see gold well above $1,000/oz during the course of the year.
MKS FINANCE PREDICTS HIGH IN 2009 OF $1,180/OZ
MKS told clients recently that: "In 2008 gold closed up 4.7%, but
fluctuated widely throughout the year, marked by the financial crisis. In 2009
investors shall continue to remain concerned about further failures in the
financial sector. As credit risk continues to prevail, investors will not be
looking at the return on their capital but at the return of their invested
capital. In H1 the risk of a global recession and depressed growth rates
remains likely."
It added in a statement: "Low interest rates may result in increased
worldwide inflation towards the end of 2009. This, combined with continuing
credit risk considerations, should motivate investors to allocate a higher
percentage of their assets into gold and, in particular, into physical gold to
reduce credit exposure to a minimum." As such it predicts a high of $1,180/oz,
a low of $720/oz and an average of $901.25/oz.
Another glimmer of hope for a value above $1,000/oz came from Mitsubishi
Strategist Tom Kendall. In his recent forecasts for 2009 he said that, "we
foresee a difficult first half for the gold market but note the potential for
a return to significant and sustained US dollar weakness by Q4 and the looming
spectre of inflation. Those pressures could drive gold back up towards the
$1,000 level before year-end."
Gold looks set for a rocky ride in 2009, with volatility remaining key,
yet the most commonly held view among those in the know is that there will be
an upswing towards H2 driven by a need for a safe-haven investment as the
gloomy financial outlook persists into the year.
Gold fixed Friday Morning at $824.25/oz. Last March 17 it hit a high of
$1,032.70/oz.
From a physical investment view, the world's largest gold-backed ETF, the
SPDR in the US, said it held 790.66 mt of gold on January 14, up 3.06 mt from
787.60 mt held January 9, taking holdings to a new record.
--Ben Kilbey, ben_kilbey@platts.com
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