Gold Expected To Catch Second Wind To Highs
By Alison Guerriere Ciaccio
Of DOW JONES NEWSWIRES
December 27, 2006
NEW YORK (Dow Jones)–Investors are poised to pour more money into the gold
market in 2007, possibly propelling the metal back near all-time highs as the
dollar is expected to dwindle, analysts and traders said.
With a weak dollar at the forefront, gold prices are could hit a price target of $850 an ounce during the first quarter of the new year, according to Neal Ryan, vice president and director of research at Blanchard and Company Inc.
Ryan said the glow from a previous shot to multi-decade highs in May for the yellow metal hasn't faded.
"With the supply and demand side of the market, there are a lot of great factors in favor of the price continuing to move up whether its less mine supply, lower central bank sales or China or Japan (interest). But right now more than anything it's a dollar-driven story," said Ryan.
In May, gold futures hit their highest level in 26 years at $728 an ounce.
Larry Young, a senior trader at Infinity Brokerage echoed Ryan's sentiment but added that he may be even more hopeful for gold's rise to its historic highs.
"I am more optimistic than most that gold will hit $1,000 an ounce at some point in 2007," said Young who is banking on more geopolitical strife to support gold prices that will send in investors seeking "safe haven assets," he said.
Industry sources have noted fund planners making precious metals, in particular gold, a larger and more active component of portfolios.
"A lack of confidence is pushing people into the metals markets and there is also a lack of confidence in the economy," said Young. "There is sentiment that things are just not right and people want to have a portion of their money put into something real. Currency is backed by paper but gold and silver are seen as true wealth."
A lot of gold's future is riding on the dollar and Young said that if a collapse of the dollar is seen with a combination of a strong downturn in the economy, then gold could push even higher.
"There are reserves of gold but we won't be able to dig up everything in the ground," said Young about the lack of supplies that will likely meet raging demand for gold.
While many market players and industry observers are expecting higher prices for certain, Mike Zarembski, an analyst at XPRESSTRADE, remains more cautious.
"I am cautiously optimistic for further rises for gold in 2007," said Zarembski.
He pegged three supporting factors seen for gold in 2007 including crude oil and expectations that it will remain above $60 a barrel, the falling U.S. dollar, and support from a firm base metals market.
The U.S. stock market is also seen as a supportive factor for gold, said Zarembski, adding that investors are moving out of stocks and into gold.
"The economy is seeing a bit of a slowdown and what we are hearing is that as we near the end of the year (2006) people are taking their money off the table (in terms of the stock market) because they are uncertain about 2007" and are putting their money into metals, said Zarembski.
While the $500 an ounce level is expected to be strong support for gold, Zarembski projects a $720-$725 gold price in the first quarter of 2007 based on dollar weakness.
Over the next 30 to 60 days, he expects gold to test the $667 an ounce area.
While anticipating higher gold prices later in the year, Dan Vaught, a futures analyst at AG Edwards, said the first quarter of 2007 could be rather weak for gold prices.
"I am skeptical that the bounce we have seen will be sustained," said Vaught, who added that gold is poised to run into steep resistance around $626 to $630 an ounce.
"We are more likely to see a test of the $600 level before we see another test of $650," said Vaught.
Vaught's expectations for a weak first quarter come from his historical analysis that gold does not trade well after the "holiday hangover."
"Demand is likely to suffer to some extent," said Vaught, although during the year he expects to see a test of $700 for gold.
"It mostly will depend on the dollar and if it will resume its breakdown," said Vaught.
Michael Cuggino, a portfolio manager at Permanent Portfolio Funds, said gold will likely see more demand from a new investor class in 2007 ranging from exchange-traded funds to central bank interest.
"Gold will continue to be a strong market and go higher," said Cuggino. "It will likely be a bumpy ride...but inflation is still a risk."
In its global outlook for the New Year, Barclays Capital analysts said that the recent bounce in gold over 2006 is likely to be tempered if the dollar rebounds somewhat in the first quarter of 2007 as they expect it to do.
In precious metals markets, gold has shown a fairly volatile but sideways trajectory across the fourth quarter, the analysts said.
"The alignment of price-determining factors is now relatively balanced, implying that this sideways path may continue for a while," Barclays said adding that on the negative side, sentiment is weakening a little, especially that which is influenced by gold fundamentals.
"In particular, gold demand has proved highly vulnerable to current price levels, and the pace of producer de-hedging has slowed markedly," they said.
But on the positive side, the analysts noted that the prospects for gold are buoyed by the combination of forecasts for dollar weakness and oil price strength.
"In addition we do not expect that the geopolitical environment is likely to become more benign in the short to medium term," the analysts said.
Overall, the analysts expect gold to retain most of its recent gains, "we would expect that the chances for a significant further upwards move are currently bounded, short of an even more dramatic weakening in the value of the dollar."
In its 2007 outlook, Barclays Capital predicts a short-term price target for gold at $625 an ounce.
-By Alison Guerriere Ciaccio, Dow Jones Newswires, 201-938-5959, alison.guerriere@dowjones.com
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