Gold at $900/oz in 2008
THE GOLD price will surge to a record high of $900/oz,
driven by a weaker US dollar and economic turmoil in
2008, while a surplus in the metal will narrow by 97
tonnes, possibly dipping into a deficit, keeping
prices strong, according to the VM Group/Fortis
bi-annual The Yellow Book.
We argue that although a recovery in the US dollar is
not impossible, and when it does come is likely to
take us all by surprise, it wont be in 2008, Jessica
Cross, CEO of VM Group wrote in the report.
US interest rates will drop to three percent by the
end of next year as the Federal Reserve takes measures
to avoid a recession, taking the dollar to fresh lows
against other currencies, she argued.
If price doesn't rise to $900/oz it will be a great
surprise
Such an interest rate cut may not in itself be
sufficient to prevent a recession, which will see
equity prices weaken. Gold could therefore benefit
from this .double whammy: lower interest rates and a
rush from equities, she said.
If the price does not rise to $900/oz some time in
2008 it will be a great surprise, and if the
background macro-economic picture in the US and a
weaker dollar prevails and gold fails to hit $900/oz,
it will be a strong indicator that gold has reached a
new historic ceiling, she said.
Mine supply is not expected to change materially in
2008 because many expansions and new projects will
come after next year.
The Yellow Book forecast gold-backed exchange-traded
funds will hold in excess of 1,000 tonnes of gold in
2008 and possibly more if new similar products are
launched in the Middle East and Asia. Over the last
three years, ETFs have absorbed 200 tonnes of gold a
year and 2008 is expected to be of the same magnitude.
Central banks within the European Gold Agreement (EGA)
are expected to sell less gold than the maximum limit
of 500 tonnes in the EGA year ending September 2008.
We maintain, furthermore, that Chinas central bank
will not add to its gold reserves, Cross said.
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The amounts that would need to be purchased to make a
difference would be so large as to make China a holder
of gold on the European scale, and the Chinese will be
aware that the Europeans have needed a sales limit in
order to exit the market in an orderly fashion.
Dehedging by gold producers will slow from this years
forecast 400 tonnes, which is fractionally below the
level set in 2006, to about 210 tonnes.
Yet the risks are on the side of higher dehedging,
the success so far of what in effect is a gamble on
higher prices will not have been lost on companies and
their shareholders and there are few signs of major
new hedge programmes coming to the fore.
The gold surplus in 2008 will narrow to 123 tonnes in
2008 from this years 22 tonnes.
We expect the physical market to record a small
surplus, of 123t, suggesting that for prices to remain
strong, investors need to remain faithful to bullion,
which, given the background macro-economic problems
relating to the probability of a US recession and a
still weaker US currency, is more than likely.
Cheers
Ery Prasetyawan
Penulis Buku " Bagaimana Bebas Utang Selamanya"
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