Gold $750-$1000 short term and bullish long term - Investec
16.09.2008
Investec Asset Management bases a positive view on the long-term gold price on a combination of macro and supply-demand drivers.
Investec remains bullish on the long-term outlook for the gold price, but warns that a stronger dollar could derail the positive outlook for gold.
Portfolio manager Daniel Sacks said today the institution's positive view was based on a combination of macro and supply-demand drivers. He said the "forces that propelled gold over the past five years were firmly in place, while policy prescriptions for the credit crisis appeared to be "powerfully and uniformly reflationary".
Investec believed gold would be well positioned into the final quarter of the year, when fabrication was expected to tighten the market. Although this did not map directly to gold prices, it did prepare the ground for macro catalysts to enter the market.
Sacks said that while it was impossible to forecast macro catalysts, systemic financial "stresses" intensifying in the US and spreading to Europe and emerging markets meant that probabilities favoured gold.
In the short-term, gold could consolidate within the $750-$1000 band, finding a floor at around $750/ounce as a lower price would result in mine closures.
Sacks said the gold price has fallen on the back of a stronger US dollar against other currencies, including the Euro and Yen.
The dollar gained strength as economic data in OECD countries, excluding the United States, showed weakness, while US economic data improved slightly. Recent weakness in oil prices might also be contributing to strength in the dollar as it trades inversely with oil.
The portfolio manager said gold had a 91% historic correlation to movements in the Euro/US$ exchange rate, although there was no fundamental reason for this.
However, Investec still believed the dollar would continue to weaken against emerging currencies that are "fundamentally important" to the gold market. These currencies include the Rupee and Renminbi, which are important for gold demand, and the Australian dollar, Canadian dollar and South African rand, which are significant for gold supply.
Sacks said that just when it looked like fears of systemic financial weakness would drive gold through $1000/ounce, the fall in the oil price "undermined" the short-term argument for gold as a safe haven. This came as investors became less risk averse, equities moved higher, the dollar regained some strength and commodity prices fell on the back of oil.
Source: mineweb.net
