Friday, December 09, 2005

Gold To $585 By Year End and $649 By Feb. Russian Central Bank Buying 500 Tons!!! - Telegraph - Hommel

Soaring gold has further to go
By David Litterick in New York (Filed: 09/12/2005)

Gold soared to fresh 25-year highs in Asia, Europe and New York yesterday, but far from sparking fears of a sell-off, a clutch of investment banks said they expected the price of the precious metal to rise further.

The most commonly traded February contract reached $522.60 in Asia overnight, before moving to similar levels in other markets.

Paul Merrick of RBC Capital Markets said: "Its current stratospheric performance is due to three factors - strong fundamentals, a rampant commodities sector, with most base and all precious metals at multi-year or all-time highs, and massive investor interest led by the Japanese."

Gold has surged as investors switch from shares and bonds, and on fears about inflation and economic growth. Commodities such as platinum and palladium, used in a wide variety of industrial processes, and silver, are also at multi-decade highs.

"Momentum traders will not want to sell - if this month's trajectory continues, gold will be at $568 by year-end and $649 by the end of February," Mr Merrick said.

Goldman Sachs has also advised investors to buy the metal. "Gold is the hedge to have when you're not quite sure what you're hedging against," the bank said.

Many central banks outside Europe are increasing their gold reserves. Russia said last month it planned to double its holdings, while Argentina has also pledged to increase gold reserves. Chinese retail investment and recycled petrodollars from the Middle East are also pushing demand higher, even as supply falls. South Africa, the world's largest producer, said gold production fell 7pc in October from a year ago.

Gold tends to be weaker when US interest rates and the value of the dollar are rising, but has still risen 19pc this year, making it one of the best performing assets.