Gold settles at $1,100/ounce
Forecasts see $1,300 by year's end
Tom Stundza -- Purchasing, 11/10/2009 11:32:53 PM
Spot gold prices are at a record high $1,100 troy ounce this week due to renewed investor interest, news that the International Monetary Fund has sold 200 metric tons of the metal to India's central bank and word that the G-20 nations plan to continue economic stimulus efforts. Now, there are forecasts of $1,300 gold before year's end.
The gold price has increased as the value of the dollar has declined because the Federal Reserve has committed to keep federal fund rate borrowing costs between zero and 0.25%. A weak dollar boosts gold's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.
MF Global analyst Tom Pawlicki tells Bloomberg that gold prices will continue to increase until the U.S. government stops accumulating debt. "Until Washington stops exploding the deficit, the dollar will continue to weaken and gold is going higher," he says.
Writing for Mineweb.com, veteran gold analyst David
Levenstein also says gold prices can reach $1,300. "While my experience has
taught me that it is very difficult to predict future prices, all the empirical
evidence tends to indicate that we can expect much higher prices for gold," he
writes.
Kaname Gokon, deputy general manager at a Japanese commodity brokerage Okato
Shoji's research section, tells Reuters that
"gold will keep looking northwards" because borrowing costs for the dollar at
near zero will keep encouraging investors to buy higher yielding assets,
including gold. And that will mean an extended period of U.S. dollar weakness
and inflated gold prices.
Actually, the U.S. dollar has displayed long-run cycles of rising and falling that can persist for extended periods of time, says analyst Michael Lewis, Deutsche Bank's global head of commodities research in London. He says that the current U.S. dollar's down cycle is now in its eighth year and, therefore, is becoming increasingly long in the tooth. So, if history repeats itself, the U.S. dollar won't hit rock bottom until September 2011.
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