  | |
| |
 |
|
| ||
Gold streaks higher, correction looms Posted: Wed, 03 May 2006 [miningmx.com] -- THE muscular sprint higher by gold price on Wednesday caught a number of people by surprise, with the $700 level looming large as investors flocked into the traditional safe haven on worries about Iran and a weak dollar. Gold pushed to $676.75/oz, a fresh 25-year high, from $666.20 in late Tuesday trade. Crude oil futures eyed $75 a barrel because of mounting tensions around Iran’s nuclear programme, which the US insists is for weapons despite repeated denials from the world’s number four oil producer. The possibility of a military strike against Iran has been raised in some quarters, but at the moment the US, Britain and France are trying to push through a United Nations’ resolution demanding a halt to the nuclear programme. Iran’s deputy oil minister has said crude oil prices could exceed $100 a barrel by next winter. “It’s more geo-political issues that is taking gold to this level and it is playing catch up with other commodities,” said Georges Lequime, a London-based analyst with RBC Capital Markets. Gold has added $100 since Iran resumed its nuclear research in early January, Bloomberg reported. The RBC house view has been that gold would reach $700 by the end of the year and $750 in 12 months. “It seems to be running a little ahead of us,” Lequime said. “The medium to longer term fundamentals look encouraging and we see much higher prices, but we are concerned that it has moved up so quickly right now that it is vulnerable to a pull back in the short term.” How sustained a pull back would be is an open question because corrections in recent months have resulted in investors piling back into gold to take advantage of what is seen as a huge resource cycle. Gold mining company shares have failed to match the stellar gains in the metal’s market. “The shares are not following through, which indicates the market in general is holding back for a pull back,” Lequime said. A resolution of the Iran standoff or any signs of higher oil prices not raising inflation could cool the gold market rapidly, Natexis Commodity Markets said in a note. “Should a correction begin to occur, this could easily trigger a raft of profit taking, certainly by the short-term trend-following speculators and, if this proved sustained, some of the more strategic investors might exit the market,” Natexis said. It is predominantly speculators holding gold above the $600 mark in a market where the fundamentals are negative. There are growing scrap supplies and declining physical offtake in jewellery, it argued. There are also another 100 tonnes of gold coming onto the market this year from increased mine output. Natexis forecasts an average gold price of $535 this year and $500 in 2007. Jessica Cross from Virtual Metals Research and Consulting said a sustainable gold price would be in a range of $500 to $550. “These very high prices are worrisome. They’ve gone up too much and too quickly. There has to be a correction.” “The jewellery market has imploded. There is very little in the way of physical demand at these kind of prices,” she said. Neil Meader, the senior analyst at London-based precious metals consultancy GFMS, said dollar weakness combined with growing tensions around Iran’s nuclear programme, were driving the flight of investment cash into gold and other metals. The dollar is hovering around a year-low against the euro. “You just have to look at where the dollar is against the euro to see a clear link with people moving into gold as a hedge against a slump in the dollar,” he said.Free news alerts: click here to
subscribe
| |||||||
