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Thursday, 5 February 2009

Gold forecast to hit US$1,000

SINGAPORE - INVESTMENT bank Goldman Sachs has raised its forecast for the price of gold to US$1,000 (S$1,500) an ounce in the next three months from its previous forecast of $700 due to rising investor demand for safe haven assets.
Gold was trading at US$902.70 an ounce by 0106 GMT (9.06am Singapore time) on Thursday, down US$2.15 from New York's notional close, but was within sight of a near four-month high of US$930.40 an ounce hit last Friday. Gold struck record at US$1,030.80 last March.

'The gold price rally has been driven by surging demand for gold in all forms: physical gold, exchange-traded funds (ETFs), and futures contracts as investors seek 'a safe store of value' amid the financial distress and inflation risks,' Goldman Sachs said in a report.

'It is also important to emphasise that the recent strong demand for gold has not beenirrational but rather pretty much in line with the probabilities of financial and sovereign default.' It also noted a strong relationship between the price of gold in US dollars and the exchange rate of the dollar against other currencies has begun to break down, adding that strong investment buying would offset a decline in jewellery demand.

The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust , said it held arecord of 859.49 tonnes of gold as of Feb 4, up 6.12 tonnes from Feb 2.

'Such strong demandfor investment reasons is likely more than offsetting the declines in gold demand for jewellery use,' said Goldman Sachs.

'In fact, this recent surge in gold ETF demand would more than offset a 20 per cent decline in the fourth quarter global jewellery demand for gold,' it said.

The investment bank also raised its forecast for the price of gold to US$950 an ounce in the next six months from an initial estimate of US$785. Its 12-month gold forecast was pegged at US$825 an ounce, up from US$795 previously. -- REUTERS

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