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Funds driving $200bn gold bull Posted: Mon, 16 Jan 2006 [miningmx.com] -- THE gold price was set to burst through $560/oz amid more support by funds and analysts who say there’s every chance the metal could continue to climb in value. And amid enthusiasm for the gold price, there’s not many dissenting voices. Speaking on Classic Business, a week nightly radio programme, African Harvest fund manager, Simon Hudson-Peacock, said buying pressure on gold was seeing the metal behave in similar ways to other metals; in fact, the gold price was lagging the price of other metals and therefore its price still had some way to travel. “If I was to pin my hat on one particular reason why the gold price is going up at the moment, it’s really all to do with this global belief in this long-term structural change in the commodity market,” Hudson-Peacock said. “If we look at last year - in terms of movements in some of the commodities - oil was up 55%, copper 40%, aluminium up 16% - but gold was only up 18% last year,” he said. “I think this has more to do with the fact that we have a view that says China and India have very robust economies that are consuming all manner of commodities, and that gold and platinum are moving within that whole commodity cycle, rather than anything specific.” JP Morgan’s gold and precious metals team believes that strength in the commodity sector in general was giving specific support to gold. “The metal market is seeing a wall of liquidity seeking exposure in the gold sector. This high level of interest is getting the attention of metal traders and price expectations have been raised,” the bank said. A crucial point is that the gold market is still relatively small compared to the general pool of world investment. According to JP Morgan, there is some $200bn invested in gold even after its recent price run which has seen it race up to more than double its level in 1999. But Datastream figures show that the listed global equity pool is about $36.9 trillion of which the gold market is about 0.5%. “Perhaps what we are seeing now is large funds getting gold exposure quickly through the bullion markets. “Getting gold exposure through the bullion markets is somewhat destabilising, as the greater gold volatility shows. However, if large cash flows were applied to the equity market, it would be like applying a fire hose to a ping pong ball,” JP Morgan said. Central banks were also recognising potential in the gold price. According to John Meyer, an analyst at Numis Securities, funds are latching on to potential central bank activities. Further political instability in the US may also be encouraging to gold bulls. “The funds may be encouraged by rumours that the Chinese central bank may have already amassed over 1,000 tonnes of gold reserve holdings some way ahead of the 600 tonnes announced in June last year,” said Meyer. “There’s no doubt, with the momentum that we are seeing at the moment, the gold price can go a lot higher than it is,” said Hudson-Peacock. There are some words of caution. Liston Meintjes, a fund manager for Metropolitan Asset Management, remarked on 702’s The World At Six, a week nightly radio programme, that: "It [the gold price] has been an overlooked item for a number of years, and we’re certainly in a stage now where there’s a bit of what I would call ‘hype’, or call it ‘enthusiasm’”.Free news alerts: click here to subscribe
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