Possible pickup in inflation boosts gold
By Purchasing Staff -- Purchasing, 9/19/2005 6:00:00 AM
Gold is a well established inflation hedge so it’s no shock that gold futures for December delivery closed out last Friday with a $10 weekly gain at $463 an ounce on the New York Mercantile Exchange. Continued post-Katrina inflation worries have pushed the price of the precious metal to fresh highs for 2005. Spot gold has averaged $443/troy ounce so far this month, very close to the highest monthly price averages in 17 years.
The last time a gold rally was tied to serious U.S. economic trouble was in the late 1970s when out-of-control inflation, unrest in the Middle East and an oil crisis pushed the precious metal from $150 to $810 an ounce. "Gold prices have been resurgent (from a cyclical low of $278 in 1999), following oil, inflation data, and fretting over global economic imbalances," Citigroup analyst John Hill writes, adding that gold could easily break $500 by the end of the year. Argentina's central bank is considering increasing gold reserves as an inflation hedge and as protection against a financial crisis. Scotia Bank sees $450 as the December price average for gold while market researcher GFMS believes the year-end price will challenge $480 and move toward $500 in 2006 because of "buoyant fabrication demand." Analysts also remain optimistic about gold's upside potential. "The way is clear for fresh highs," says James Moore at TheBullionDesk.com, who also pegs the new major upside target for gold at $475 to $480. "The overall picture for gold hasn't been this good in years," says Peter Grandich, editor of the Grandich Letter, who also forecasts gold at $500—citing "strong physical buying, dwindling affects from central-bank sales and continuing deficits in mine supply." John Stafford, editor of Stafford's Investment Strategy Letter, also says prices are "headed to $500 because of actual physical demand."
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