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Gold could hit $3400 per oz.

chuckwoww

By chuckwoww,
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Metals - Gold close to 28-year high on dollar weakness, record price expected

November 08, 2007: 04:57 AM EST

 

LONDON, Nov. 8, 2007 (Thomson Financial delivered by Newstex) -- Gold rose close to a 28-year high hit yesterday as the dollar remained weak and as credit crunch jitters fuelled some investment into the metal as a safe haven.

 

Because prices were below almost record highs, buying strengthened as the metal is widely anticipated to match and even surpass its record price.

 

At 9.34 am, spot gold was trading at 830.50 usd an ounce, against 831.25 usd in late New York trade yesterday, having hit 845.58 usd, its peak value in almost 30 years.

 

Gold fetched its highest ever price in January 1980 of 850 usd per ounce.

 

Ongoing investor risk aversion as evidenced by heavy losses in equity markets yesterday, high demand for US Treasuries combined with a slide in the usd has fuelled gold's recent run up, said HSBC analyst James Steel.

 

'Gold prices also rally as oil closes in on 100 usd per barrel,' he added.

 

The precious metal moves in the opposite direction to the dollar as gold is seen as an alternative asset and moves in line with high oil prices as investors hedge against energy-led inflation.

 

While oil prices have eased from record highs this morning, the 100 usd per barrel-milestone is expected to be hit in the very near future, which could help gold push to its record.

 

The big economic news is the announcement of the European Central Bank (ECB) and Bank of England interest rate decisions, said Standard Bank precious metal analyst Walter De Wet. 'In both cases, rates are expected to remain unchanged -- the policy statements will likely be the focus.'

Odds of a Bank of England (BoE) cut have shortened somewhat, however, after some weak data this week.

 

While only two of the 41 economists polled by Thomson Financial News -- Bear Stearns (NYSE:BSC) and Royal Bank of Scotland -- think the rate-setting Monetary Policy Committee (MPC) will cut its benchmark rate by a quarter point to 5.50 pct, most of the majority acknowledge some chance of a reduction.

 

Elsewhere, silver was trading at 15.04 usd an ounce against 15.28 usd in New York yesterday.

 

Platinum was steady at 1,454 usd an ounce from 1,455 usd, having set an historic peak at 1489.50 usd yesterday. Palladium fell to 366 usd from 373 usd.

 

Copyright Thomson Financial News Limited 2007. All rights reserved.

 

The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial New

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jitagawn Newbie

jitagawn

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USD driving gold

 

The real driver of gold is the ongoing fall of the USD, which so far has not seen a bottom after it fell below 80 on the USDX. When the USD fell below 80 on the USDX recently and stayed there, that was a new low range, as 80 has been a low for many years. Formerly, whenever the USD dropped to 80, it was supported. Our trade partners' central banks would intervene. Even if it did drop below 80, it was a blip. Usually, when the USD hit that level, it signaled a short term USD bull, and the USD would get back up to 84, 85, or higher.

 

During those times, 700's was pretty much a high range for gold recently. But gold's new record highs (nominally, not inflation adjusted) reflect evidence that the USD is finally turning to a new low range on the USDX (basket of currencies heavily Euro weighted). Right now, it's a question of whether the USD will carve out a range in the mid 70's, or can it even break into the 60's?

 

Major central banks have recently stated they are moving their minimum USD exchange rate tolerance lower. Up to recently, the ECB stated 1.40 USD to the Euro would cause intervention. Now that has changed to 1.50, according to some of their comments. Up to now, the BOJ would intervene to support the USD if it threatened to hit 110 Yen to the USD. That might still happen, but they recently made comments that the new defense level could be 100 Yen.

 

Those are two major changes about USD exchange rate policy since recent years. Those statements, and China's noises about the USD losing its world reserve currency status, have made currency markets realize new lower ranges for the USD below 80 on the USDX are likely permanent. The only question just now is where is the new low range? The USD is presently at 75.31, gold at an amazing $840.

 

There are a lot of reasons for the USD to weaken and find a significantly new low range right now. Probably the most significant is that our trade partner central banks have apparently decided to let the USD find new lows, whereas previously they defended the USD at 80. Of course we all know there are many good reasons for the USD to weaken, like a weakening US economy, huge trade deficits and so on. But, up to now, our trade partners were willing to support the USD despite that.

 

If central banks have indeed decided to let the USD find a new low range, then gold will reflect that. In fact, gold will outrun the actual USD fall (increase disproportionately) because central banks new lower USD policy is a major change from recent years. And of course, when gold carves new highs like this, and the USD new lows, speculators are all over gold, and a weak dollar.

 

The question becomes, then, will gold's new highs, and the USD new lows remain with us, or will this merely be a recent spike, and a significant correction come about, and gold return to the low 700's for example?

 

Or are we now next looking at gold prices over $1000, and in two years you will kick yourself for having to spend thousands of dollars an ounce to get some? â??Darn, I could have bought gold at $800 bucks last year, and now its $1600!â? â?? etc.

 

A permanent new high range for gold?

 

So we discuss the question of permanency of new gold prices levels â?? and are we next looking at over $1000 gold by January, and will the $800s be a new floor?

 

First of all, if gold is to remain at these new high levels ($800 and more) there have to be good fundamental reasons that stay with us. The foremost of these would be that the USD is now permanently in a new low range. (below 80 on the USDX and going lower for years to come).

 

I remember Paul Van Eden discussing gold and the USD several years ago, and he repeatedly stated something like â??it's all about the USD, as far as gold prices.'

 

I agree with that view. We hear lots of discussion about Mid East turmoil boosting gold (true), oil prices boosting gold (true), wars, and various reasons for flight to safety. But these cases are usually short term events, and when the chaos subsides, gold falls back to whatever major trend it began in. Gold's major trend has been grinding higher and higher since 02. The USD grinding lower and lower, but it did have a floor at 80 on the USDX for many years due to trade partner intervention.

 

There is such a huge USD footprint on the world economy that any movement in the USD affects gold prices more than anything else.

 

So, since the USD appears now to have permanently broken below 80 on the USDX, we definitely have a major change in world currencies and gold. In fact, as other central banks continue to raise rates to fight inflation, or find it very hard to ease because of inflation, and then the US must ease rates to deal with our various economic problems, and a very serious credit crisis â?? it is easy to make a case the USD has indeed carved out a permanent new lower range below 80 on the USDX, now in the mid 70's and still falling.

 

All of this means a weakening US interest rate premium to other currencies, a lower USD, and probably a new high range for gold that will stay with us. These are the long term trends supporting gold.

 

Now, a comment on the weight of the USD to gold, and or, gold to other major currencies. Gold is a central bank reserve asset. Central banks also hold other currencies as reserve assets. They can then use these reserve assets to support the value of their currencies.

 

Since gold is a reserve asset, unlike other commodities, its value is primarily driven as a comparison of the total gold reserves outstanding to the total of any one currency outstanding. In other words, since the USD is so huge worldwide (so much out there, and a primary world reserve currency) gold's' price is primarily driven by what the USD does. Gold is not primarily driven by varying yearly jewelry demand in India or Asia for example.

 

Gold is not primarily driven by oil prices. Both Jewelry and oil do significantly affect gold, but they are not primary drivers. What is a primary driver is the very roughly 100,000 tons of gold held for bank reserves, or safety by the public as money, compared to what the currencies do.

 

A fluctuation of 400 or 500 tons in gold demand in a year is a drop in the bucket compared to 100,000 tons outstanding. (I know there are more than 100,000 tons but I'm just using that as an example). Additionally, a 500 ton increase in speculative gold demand in a year is quite significant, but that component of gold demand is here today and gone tomorrow, and mostly just adds volatility. Gold ETFs are growing tremendously this year in tonnage.

 

And, even in the case of that gold ETF growth, much of it is not just speculation, but is due to flight to safety â?? protecting money from inflation, and a falling USD for example.

 

Gold is in a long term bull market vs the USD, and is going to go much higher in coming years. The political chaos, high oil prices, and other gold bullish factors are merely adding fuel to the fire. So is renewed speculative interest and ETF growth, but that component is very flighty.

 

Of course, gold can correct significantly if there is a serious world stock sell off, as this has happened numerous times this year. Nevertheless, apart from a long term world market selloff that does not recover, I expect gold to get over $1000 in 08, and probably hold onto those gains. The primary reason is a new lower USD range, yet to be determined, that will likely stay with us going into 08. It is key that central banks appear to have decided to let that happen.

 

Sorry its so long but for me it rings true.

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elef Newbie

elef

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I saw some reports from several european economists yesterday that they predict a depreciation of the dollar against other currencies around 25 % in a few months. So a gold price around 1,250 dollars seems probable.

 

As BoT seems to keep the baht linked to the dollar, it will be good times for us in LOS. In Denmark they plan to arrange shopping trips to the US BTW.

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