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Gold Is Likely to Continue Its Climb
Gold likely will continue to build on its string of record prices as speculative buying shows no signs of abating, preventing any break in prices in the near term, some analysts said.
The expectations of higher prices, sustained dollar weakness and the fear of inflation because of government economic-stimulus measures have lured speculators. This dollar-driven speculative investment has been the main thrust behind gold's price rise, outweighing slow jewelry demand and easily absorbing scrap gold sales and metal sold by miners.
Most-active December gold notched a record of $1,118.60 a troy ounce in intraday trading on the Comex division of the New York Mercantile Exchange on Tuesday, driven by fresh ideas that U.S. interest rates will remain low and keep the dollar depressed. In midday trading Wednesday, gold was up 1% to $1,113.20. For November, December gold has risen about 7% and is up about 25% on the year. The Dollar Index, a trade-weighted basket of six currencies, was at 74.853 from 75.052 on Tuesday.
Late Tuesday, Federal Reserve Bank of Dallas President Richard Fisher said there are risks to keeping U.S. interest rates low for an "extended period" and acknowledged the weight that has on the dollar, but said because inflation likely is to stay low it isn't a concern.
With the dollar likely to stay down, gold will remain attractive as an alternative currency.
"Until the dollar puts in a convincing rebound, then the onus is to the upside in gold," said Jim Steel, senior vice president and metals analyst with HSBC.
The speculators who are buying the metal can be divided into two camps, said Adam Klopfenstein, senior market strategist with futures broker Lind-Waldock. The first are those who think the economy is recovering, so they are seeking riskier assets such as gold. The second are those who are buying gold for its more traditional role as a haven investment because they believe the rally in stocks will collapse.
Mr. Klopfenstein doesn't see a big price drop in gold before year-end as these groups are buying on price dips when the other group sells.
Sales of scrap gold as well as lackluster jewelry purchases in India, the world's largest buyer, have yet to dent gold's surge, Mr. Steel said.
"If you look at the fundamentals, the increasingly high gold prices have rationed demand from physical buyers like jewelry stores, but not so much for investors looking at precious metals mutual funds or ETFs," said Tom Pawlicki, precious metals analyst with MF Global.
Scrap sales may rise next year, but Mr. Klopfenstein said they will pale in significance to actions taken by nations such as India and China.
Last week, gold got an additional boost on news that India's central bank bought 200 metric tons of the 403.3 tons the International Monetary Fund was planning to sell.
"The speculative community has been expressing interest regarding this India development," said Bart Melek, global commodity strategist at BMO Capital Markets. "There could be large buyers in the wings should additional gold hit the market."
He sees gold peaking on an annual basis at $1,100, but in a "robust scenario that could easily unfold" prices could move up to $1,300 on an annual basis.
Given gold's extended winning streak, some analysts believe the rally may be in for some sort of retrenchment. Unless the dollar "goes into a short-term spiral," gold may be due for a pullback in the next couple of weeks, said Michael Gross, broker and futures analyst with OptionSellers.com.
"You may have some profit-taking, sure," said Stephen Platt, analyst with Archer Financial Services. "But it's still a hard asset play against the weakening dollar, and until those assumptions change, the market won't back off to any degree."
He said gold rising to $1,180 to $1,200 is "something that's certainly possible" should the weak dollar play continue.
"Trying to make a correction here is kind of hard," Mr. Platt said.
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