Record-breaking gold could hit US$1,000: analysts Posted: 15 January 2008 1122 hrs
LONDON : The price of gold is hitting new record highs owing to the troubled US economy and a cocktail of other supportive factors, leading some analysts to predict US$1,000 per ounce could happen soon.
In recent days the precious metal has blasted past US$900 in a record-breaking run.
Unprecedented demand for jewellery production in China and India, the weak US dollar, rising inflation due to high oil prices and fraught geopolitical concerns have sparked demand for precious metals - particularly gold.
On the London Bullion Market on Monday, gold blazed a trail as high as US$914.30 per ounce.
On Friday, gold had broken through US$900 for the first time during New York trade.
"Psychologically, 1,000 US dollars per ounce now has to be a target," said John Payne, portfolio manager of Hexam Global Resources Absolute Return Fund.
"Gold looks very well supported. I think the primary driver is concern over the US economy and the weak dollar. Food price inflation, geopolitical concerns and oil near 100 US dollars per barrel are all drivers of the price," added Payne.
The weak US currency makes commodities priced in US dollars - like gold and crude oil - cheaper for buyers using stronger currencies and therefore encourages demand.
Traders are also investing their cash in gold as they search for shelter from concerns over the troubled United States economy.
In addition, the metal benefits from its safe-haven status in times of geopolitical uncertainty.
Also, with oil prices trading above US$90 per barrel, more investors are turning to gold as they seek to guard against rising inflation - sparked by the soaring cost of crude in many countries.
Meanwhile on Monday, the European single currency rocketed as high as US$1.4914 on growing expectations the Federal Reserve will cut interest rates this month by 50 basis points to bolster the battered US economy, dealers said.
Nik Bienkowski, head of listings and research at ETF Securities, agreed that gold prices were on track to score new record highs.
"The US Treasury has indicated that it has a negative view on the US (economy) and the markets are looking for a 50 basis point reduction in interest rates at the next Fed meeting.
"That would be negative for the US dollar and therefore positive for gold," he added.
However UBS analyst Robin Bhar sounded a cautious note.
"We are more concerned about the prospects for a sharp correction in all the precious metals rather than for near-term gains," Bhar said.
Gold, which is used in the dentistry and electronics sectors, had smashed its 28-year-old record of 850 US dollars an ounce earlier this year.
In the first week of 2008, political unrest in Pakistan after the murder of the country's opposition leader Benazir Bhutto led to fresh interest in gold.
Gold's last great charge was in the 1970s - a decade which was marked by recession, the two stunning oil shocks of 1973 and 1979, rampant inflation and doubts about the outlook for the US economy.
In recent years, gold has found favour on buoyant demand across commodity markets that has been driven by the booming Chinese and Indian economies.
But the real kick came in late 2007 as the prospect of slower global growth and rising inflation raised the spectre of "stagflation" - the bugbear of the 1970s - coupled with a fearsome credit crunch sparked by the collapse of the US sub-prime home loan market. - AFP/ch
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