Gold is forecast at $600, oil below $60 January 31, 2006
By Barani Krishnan
Kuala Lumpur - Gold could pierce $600 an ounce this year and oil might slide below $60 a barrel, US money manager Lord Abbett said yesterday, cautioning that speculation, rather than fundamentals, would decide.
Demand for gold looked steady amid lower South African supply, while US crude inventories were comfortable without further pressure from Iran, said Britton Busby, a research economist at Lord Abbett.
Investors must beware of possible market distortions by speculators putting billions of dollars at times on the opposite side, he added.
"For gold, the momentum is clearly behind the surge, and no one wants to get in front of that momentum," said Busby.
"Our forecast for gold is up another 5 to 8 percent in 2006."
Gold is hovering around $560 an ounce after hitting 25-year highs of $567.70 a week ago. Another 8 percent would bring it close to $605. Busby feels gold has overshot its value.
"We do own some gold stocks as part of a hedging portfolio. But about 50 percent of open interest contracts in gold happen to be not commercial and fundamentals don't appear to support prices."
"The only thing really supporting gold, in our view, is speculators, and some supply concerns," he said, referring to new lows in output at some of the world's largest gold mines in South Africa after a decade of declining production.
Oil raced to $68 a barrel yesterday as Iranian crude supply remained under threat from a nuclear dispute with the West. A sharp fall in Russian energy exports and rebel crisis in Nigeria's oil industry added to market fears.
Despite forecasts of lower spring demand, ministers of oil cartel Opec said they were trying to keep output near a 25-year high, with at least six of the group's 11 members agreeing.
Busby put crude at below $60 a barrel, or even near $50, by end-2006, saying that would be his call unless global supplies sank or the US went into another war.
"To us, crude prices are really too high," he said. "We think inventories look pretty handsome right now. Even on the refined products, things have improved and they are not in great demand, although demand remains strong."
It is the same story in China, the one place everyone points to when trying to justify multiyear highs in commodities.
"There's a 10 percent growth a year in China's automobiles sector," Busby said.
