Gold, plat­inum gal­lop­ing

The Weekend Australian - Travel - - Resources - Clau­dia Car­pen­ter

GOLD and plat­inum rose to records as a de­clin­ing dol­lar in­creased de­mand for pre­cious met­als as al­ter­na­tives to stocks and bonds. The dol­lar fell as traders in­creased bets that the Fed­eral Re­serve will lower US in­ter­est rates to avoid a re­ces­sion. Gold has gained 8.3 per cent this year and the dol­lar has fallen more than 1.9 per cent against the euro, to a seven-week low. Oil and base met­als such as cop­per also rose, lift­ing the UBS Bloomberg Con­stant Ma­tu­rity Com­mod­ity In­dex to the high­est ever.

‘‘ We’re in a fall­ing rate en­vi­ron­ment. I think that works in gold’s favoUr,’’ Richard Ur­win, Lon­don-based head of as­set al­lo­ca­tion at Black­Rock In­vest­ment Man­age­ment, says. ‘‘ We’re prob­a­bly in an en­vi­ron­ment in which, on av­er­age, the dol­lar is go­ing to de­pre­ci­ate. Gold is a good hedge against it.’’

Gold fu­tures for Fe­bru­ary de­liv­ery rose $5.70, or 0.6 per cent, to close at $903.40 an ounce on the Comex di­vi­sion of the New York Mer­can­tile Ex­change. The price ear­lier reached $915.90, the high­est ever for a mostac­tive con­tract. Twenty-three of 29 traders, in­vestors and an­a­lysts from Mumbai to Chicago who were sur­veyed by Bloomberg on Jan­uary 10 and 11 ad­vised buy­ing gold this week. Five said sell, and one was neu­tral.

The mar­ket is still ex­tremely bullish,’’ says James Moore, an an­a­lyst at TheBul­lionDesk.com in Lon­don. With the US po­ten­tially cut­ting in­ter­est rates while those in Europe stay firm, the dol­lar looks set to add ad­di­tional up­side mo­men­tum.’’

The dol­lar de­clined on spec­u­la­tion US bor­row­ing costs will fall be­low those de­nom­i­nated in cur­ren­cies held by mem­bers of the Euro­pean Union.

Fed funds fu­tures con­tracts on the Chicago Board of Trade show 54 per cent odds the Fed will cut its 4.25 per cent tar­get rate for overnight bank loans to 3.75 per cent at its Jan­uary 30 meet­ing. The Fed low­ered the rate 1 per­cent­age point last year. The ECB raised rates twice in 2007 to 4 per cent.

De­mand for gold will be less af­fected by a global slow­down than sil­ver, plat­inum and pal­la­dium, says Wal­ter de Wet, head of com­mod­ity re­search in Jo­han­nes­burg at Stan­dard Bank Group Ltd, Africa’s largest lender.

In­dus­trial uses for gold, such as den­tistry and elec­tron­ics pro­duc­tion, made up 15 per cent of to­tal de­mand in 2006 com­pared with more than 50 per cent for plat­inum and 47 per cent for sil­ver, ac­cord­ing to es­ti­mates by Lon­don-based re­search com­pany GFMS Ltd. Jew­ellery ac­counts for al­most 60 per cent of gold con­sump­tion.

The in­vest­ment com­po­nent of de­mand for all of th­ese pre­cious met­als is dom­i­nat­ing,’’ de Wet says. ‘‘ We’re likely to see an in­crease in all of th­ese met­als but gold is prob­a­bly go­ing to out­pace.’’ The gains may last un­til the sec­ond half of this year, he says.

‘‘ We be­lieve the broader in­vestor base is not yet in­volved in gold, which re­mains a very small mar­ket,’’ Cit­i­group Inc an­a­lyst John Hill says. In­vest­ment de­mand for bul­lion, ex­clud­ing pur­chases for jew­ellery, to­talled $13 bil­lion in 2007, he says.

In­vestors may also pre­fer gold to stocks, an­a­lysts say. The Stan­dard & Poor’s 500 In­dex has fallen 3.7 per cent this month.

‘‘ Peo­ple are look­ing at pre­cious met­als as prin­ci­pally a safe haven while they ride out a cor­rec­tion in eq­uity mar­kets,’’ Peter McGuire, man­ag­ing di­rec­tor at Com­mod­ity War­rants Aus­tralia Ltd, says.

Gold has had a cor­re­la­tion of 0.71 against the euro-dol­lar ex­change rate in the past three months, com­pared with 0.67 in the pre­vi­ous three months. A read­ing of 1 would mean the two moved in lock­step.

Gold still is cheaper than its in­fla­tion­ad­justed price. In 1980, fu­tures reached a record $873 an ounce, which would be the equiv­a­lent of about $2186 last year, based on an in­fla­tion cal­cu­la­tor on the Min­neapo­lis Fed­eral Re­serve web­site.

Sil­ver for im­me­di­ate de­liv­ery rose to $16.3113 an ounce af­ter ear­lier ris­ing to $16.60, the high­est since Novem­ber 1980.

Plat­inum for im­me­di­ate de­liv­ery rose to $1,573 an ounce, af­ter ear­lier touch­ing a record $1,592. The pre­cious metal is used in prod­ucts such as jew­ellery and auto-emis­sions con­trol equip­ment.

Mac­quarie Group Ltd. raised its fore­cast for the av­er­age plat­inum price this year by 16 per cent to $1475 an ounce. It also in­creased its 2009 and 2010 es­ti­mates by 15 per cent.

Pal­la­dium for im­me­di­ate de­liv­ery ad­vanced to $381.75 an ounce.

Gold and other pre­cious met­als may de­cline in the short-term as some price gauges show the ral­lies have been over­done.

‘‘ We are more con­cerned about the prospects for a sharp cor­rec­tion in all the pre­cious met­als rather than for near-term gains,’’ UBS Lon­don-based an­a­lyst Robin Bhar says. ‘‘ It is clear that there are very large spec­u­la­tive po­si­tions present in gold and that gold is vul­ner­a­ble to a sharp cor­rec­tion in price at any time.’’ Bloomberg

Pic­ture: Reuters

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