Gold Prices Creeping Toward $1,100 per oz.
Posted May 24, 2009on:
Gold will rush to $1,000 if it crosses $965 threshold
If gold crosses the $965 an ounce threshold this year, it will race quickly to touch a price of $1,000 an ounce and edge beyond, says Jeffrey Rhodes the Chief Executive of INTL Commodities.
Speculators and “fear factor” may play a key role in ensuring that the bullion touches such a price, he adds. There is a strong potential of gold prices touching a new high this year, beyond the levels it has previously seen, Rhodes asserts.
What makes you predict that gold prices are set to rise this year?
With the global financial crisis on, the money managers are holding much more in cash now than earlier. Gold prices have rallied this year. The prevalent concern is whether there is rally in the bear market or the bull market.
Gold is considered a currency to hedge against inflation. If the US dollar loses value against a currency it also loses value against gold. The greenback has always had an inverse relationship with gold. Now the concern is that the measures taken by the government to combat the financial crisis may give rise to inflation. And investors may resort to gold as an investment weapon.
So what could serve as a trigger for the rally?
What’s lacking now is the speculative element and fear factor. If they come in gold prices could race up. If you see price beyond $965 prices could easily race up to $1,000 an ounce and then cross it. I think we may see a new high in gold prices this year. High amounts of cash are waiting on the sidelines to come in as an investment.
What is your opinion on the steps taken by the government to combat the crisis?
The steps taken today are understandable. However they are sowing the seeds for future inflation. The governments are comfortable tackling inflation rather than deflation. They are therefore turning the markets into a condition that they are used to tackling.
Gold prices are expected to rise at an average of 10 per cent every year. Do you think this will remain the scenario in the future?
A gold price of $750 and $850 now provides a very solid platform for the coming years.
If we consider the gold prices that were prevailing in 1980, adjust it with inflation, the yellow metal price should today have been priced in excess of $2,000 an ounce. This figure suggests that gold is undervalued.
Do you see strong investments flowing into gold in the coming months?
As I said earlier, people are waiting with their money on the sidelines. This investment will come in before inflation hits.
Gold has been called the seaweed of the world’s financial markets. If you see it on the shores, you know that there is trouble coming.
Earlier, 80 per cent of the annual off-take of gold was from the jewellery sector. That meant 80 per cent of gold buyers came from the jewellery sector and 20 percent from the investors.
In the past one year 60 per cent of gold buyers come from the jewellery sector and 40 per cent of the buyers were investors. This could change to 50-50 per cent. The flow of gold has reversed. I call gold an insurance against inflation and suggest that five to 10 percent of one’s investments should be in gold. High net worth individuals are definitely doing. That’s how ETFs are doing so well.