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Articles: Gold set to shine in 2007

Posted by admin on Thursday, December 28, 2006 - 03:39 PM

28/12/2006

Johannesburg - Although gold has struggled to recoup its momentum after soaring to a 26-year high of $730/oz in May, a medium term view shows the metal is still trading about $100/oz more than it was a year ago and has far outdone many expert forecasts made at that time.

Investors are again seen as the driver of the phenomenon and they again hold the key to potential further advances in 2007. In fact 2006 will be the fifth year of gold's current bull trend, which has seen the price more than double from the 2001 closing price of $278.95/oz. Over the three-year period between 1999 and 2001, the gold price averaged a meagre $271/oz, but in May of the latter year, the bear market ended and the bull market began. The bull has not stopped running and earlier this year, the gold price touched $730.30/oz, almost three times the $254.75/oz it bottomed at in April 2001, immediately preceding the bull trend. The rise to the 26 year high, due partly to number one producer Barrick Gold's massive dehedging of the Placer Dome forward sales book, which it had recently acquired, proved unsustainable and within a month gold had fallen by nearly $200/oz. Gold seen trumping highsGFMS has since returned with an update to its latest survey, saying that gold would trump these levels again. First it said this would happen by the end of this year, but has since prolonged the occurrence to the first quarter of 2007. Standard Bank of London says that while gold is hovering around $620/oz at the moment, its uptrend is expected to continue from early next year. Merrill Lynch also recently kept its 2007 gold forecast unchanged at $675/oz, and it upped its forecast for the next three years after that from $600/oz to $650/oz. According to research earlier this year, GFMS points out that investors have been buying gold for its impressive performance compared to stocks and bonds. "The rally of the last few months of 2005 in particular seems to have eradicated any residual 'anti-gold' sentiment that had been lingering since the 1990s, when a disappointing price performance had taken gold off the radar screen of most investors," said GFMS. The introduction of the gold ETF, has been a key feature of this gold bull trend, and the global holding of this product, has been named the 'People's Central Bank', a phrase coined by David Davis, gold analyst at Andisa Securities. Attracting investorsThis easier access to physical gold for investors has attracted large amounts of investors to the product. The product launched by the World Gold Council (WGC), an industry body, has grown rapidly since its launch on various exchanges a few years back. This year alone, the US product, by far the largest, has added another 188.73 tonnes to its vault, up 72% to 452.01 tonnes since the start of 2006. "Over the five years from 2001 through 2005 investors have added 194.5 million ounces (5514 tonnes) of gold to their collective coffers, to the point in early 2006 where private investors now own more gold than the governments of the world," said New York based consultancy, CPM in its annual survey earlier this year. Investors are flocking to the yellow metal for a number of reasons, according to CPM. These include concerns over the future course of currency exchange rates, and others are buying to diversify their portfolios. Gold also carries certain safe haven properties, and with nuclear threats and Middle East tensions continuing, this factor remains high. While as a hedge against inflation, oil prices have also been highly correlated with gold this year. These factors have not waned, and some economists still expect a considerable weakness in the dollar, as long as the US' massive trade deficits remain.

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