Oil could boost bullion price David Uren, Economics correspondent 17sep05
THE gold price would soar above $US1000 an ounce if its traditional relationship with the oil price were to be re-established.
An analysis by ABN AMRO commodities analyst Nick Moore says the gold price has traditionally moved in tandem with the oil price. "Over the past 20 years, oil has averaged $US359 an ounce and oil has been $US23.70 a barrel. Using monthly data, that equates to one ounce of gold buying 17 barrels of oil."
Moore says that on today's oil price, that would equate to a gold price of $US1115 an ounce.
He says that although this price, representing a rise of almost 148 per cent, may seem ridiculous, the copper price is now 185 per cent above its low point achieved in October 2001, while the nickel price rose by 270 per cent in the same period.
The gold price has risen from $US430 to $US457 an ounce over the past two weeks and is expected to achieve its highest level since June 1988 in the coming week, in response to the latest fillip in the price caused by fears that the oil price spike in the wake of Hurricane Katrina could add to world inflation.
This has been supported by an assessment by authoritative British gold analyst GFMS that the metal is in short supply.
The annual gold survey compiled by GFMS says gold will reach $US480 by the end of this year and surpass $US500 in the first half of 2006.
GFMS, which conducts a painstaking global assessment of supply and demand in the secretive gold market, estimates that demand for gold from Indian jewellery fabricators has risen by almost 50 per cent to 500 tonnes last year.
Total fabrication demand is expected to rise by 6.8 per cent this year to reach a four-year high. Jewellery fabrication in the first half of the year is estimated to have risen by 16 per cent.
The firm says that fundamental forces of supply and demand are overtaking investor influences in the gold market
Mine production dropped by 5 per cent to 2464 tonnes, with sharp falls in Indonesia, South Africa and Australia.
GFMS says the drop in Indonesian production is likely to prove temporary, as the Grasberg mine in Indonesian New Guinea recovers from production problems.
South African production slipped by 15 per cent because of mines being rendered uneconomic by a strong exchange rate.
Australia slipped behind the US and is now the third-largest producer. The closure of Bronzewing, Kundana and Sons of Gwalia mines contributed to a 9 per cent drop in Australian mine production.
GFMS says these reverses will take longer to overcome.
