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The gold rush

March 5, 2009
Gold prices can cross its all-time high if fears of the financial meltdown get worse.

Want to buy an ounce of gold? IT will set you back by almost $1,000 today. Unthinkable even five months ago, the towering prices are a reality now as the yellow metal enjoys an amazing run in the global markets. Gold recently hit $1,000 per ounce (London PM fix) and is up nearly 14 per cent since January. In fact, the metal has been in demand since Lehman Brothers filed for bankruptcy last year. Investors consider it as a safe haven as stocks and other financial assets are on a downturn with most economies not showing signs of recovery yet. The question now being asked is: how high will gold prices go?

Experts say if global growth rebounds, gold could fall under some selling pressure. But they are convinced that over the next few months, at least, gold prices will hover around the $940-level.

In the long run, the future of gold hinges on how bad the financial crisis can get. If it worsens, gold’s bull run will continue for a while. Says Kuljeet Kataria, Vice President (Commodities), Motilal Oswal Securities: “The global economic downturn has pushed the price of gold beyond its fundamental values. The long term trend is bullish.” Kataria reckons that over the next year, gold prices could soar to $1,400, breaching its all-time high of $1,033.

Demand, too, continues to rise. The net retail investment demand in gold increased 87 per cent in 2008 (over 2007) to 769 tonnes. In fact, so strong was the demand in 2008 that it outstripped supply by 191 tonnes.

Two years ago, supply exceeded demand by 165 tonnes. Speculators also played a big role in gold’s recent movements. In the coming months, this speculation is expected to decrease and gold prices may not run up as fast as it did recently.

Yet, in 2009, gold will hog the spotlight as an asset class to watch.

Clifford Alvares

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