BLOOMBERG vom 24.06.2004
Gold May Average $400 in 2nd Half as Dollar Gains, Survey Shows
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June 25 (Bloomberg) -- Gold prices, down 7 percent from a 15- year high in April, may be little changed during the next six months because of rising U.S. interest rates and gains in the dollar, a survey of traders, analysts and investors showed.
Gold will average $400 an ounce through Dec. 31, compared with about $402 in the first half, according to the median forecast of 19 respondents from New York to Sydney. Gold for immediate delivery has fallen 4 percent in London in the past six months, the worst performance for any metal except nickel.
``People are legitimately questioning if this is `game over' for gold,'' Philip Klapwijk, managing director of London-based researcher GFMS Ltd., said in a telephone interview. Gold traded at about $400 an ounce on Thursday. It reached $431 on April 1, the highest since August 1988.
Gains in interest rates and the dollar reduce gold's appeal as an alternative to fixed-income securities. The euro has fallen 3 percent against the dollar this year, and Federal Reserve officials have indicated the U.S. central bank may lift its benchmark interest rate from a 46-year low of 1 percent. Fed policy makers will meet June 29 and 30 in Washington.
Interest rates in the 12-nation euro region have been twice the U.S. level, attracting savers and helping both the euro and gold to rise 20 percent last year. Investors turned to the metal as it became cheaper to buy with the European currency or served as a hedge against declining values for U.S. assets.
Gold Hedge
``Gold really is the portfolio hedge against the declining dollar,'' said Frank Holmes, who manages $150 million in gold- related funds at U.S. Global Investors Inc. ``That's what boosted it last year.''
Fed policy makers will at least double to 2 percent their target rate for overnight loans between banks by year-end, a majority of economists at Wall Street's largest bond-trading firms said in Bloomberg survey conducted this month.
Hedge funds and other large speculators are already pulling out of gold. As of June 15, they had cut their net-long position in gold futures on the Comex division of the New York Mercantile Exchange by 80 percent, from a record in April, according to data from the Commodity Futures and Exchange Commission.
``We are looking at a cooling of investment demand for gold, based on more attractive dollar, equities, and interest-bearing assets,'' said Jeffrey Christian, managing director of CPM Group, a commodities research company in New York.
Forecasts for the second-half average price ranged from a low of $360 an ounce to a high of $450 in the survey. Christian forecasts an average of $380, with a peak of $400. Holmes sees an average of $410, with a high of $440.
Twin Deficits
The Fed will need to increase rates at least 200 basis points, or 2 percentage points, to have a lasting impact on gold prices, Holmes said. The U.S. current-account deficit widened to a record $144.9 billion in the first quarter, requiring an inflow $1.6 billion a day from abroad to prop up the dollar.
The U.S. government expects its budget deficit to reach a record $521 billion this year.
``The U.S. still has the twin deficit problem,'' Holmes said. ``That means the dollar can't go up too much.''
Inflation and unrest in the Middle East may bolster gold prices. Inflation erodes the value of fixed-income investments, making gold an attractive alternative. The metal also can rise in times of turmoil because investors expect it to hold its value better than paper securities.
Gold prices jumped 5.4 percent on Sept. 11, 2001, the day terrorists flew hijacked airplanes into the World Trade Center and the Pentagon in the U.S.
Iraq Unrest
``The average gold price will pick up in the second half of the year because of rising inflation and terrorist potential,'' said Thomas Au, who helps manage $43 billion at TimesSquare Capital Management. He didn't give a specific forecast.
Prices paid by U.S. consumers rose 0.6 percent in May, the biggest increase since January 2001. In 1990, when inflation reached a nine-year high of 6.25 percent, gold reached a one-year high of almost $424.
U.S. and Iraqi officials have said they expect insurgents to step up violence in Iraq before the planned handover of power to an interim government on June 30. Rebels yesterday killed at least 69 people throughout the nation, according to the Associated Press. Gold prices jumped as much as 2 percent.
Lower-than-expected bullion sales by central banks may support gold as well. A five-year agreement limiting the amount of gold sold by 15 central banks to 500 tons a year takes effect in September.
($/ounce)
High estimate 450
Average estimate 398
Median estimate 400
Low estimate 360
Year-to-date average 402
To contact the reporter on this story:
Laura Humble in London lhumble@bloomberg.net
To contact the editor responsible for this story:
Stephen Farr in London at sfarr@bloomberg.net
Last Updated: June 24, 2004 19:04 EDT
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