The news just gets better. Gold prices are set to hit $1,500 an ounce in the next 12 to 15 months, said Gary Dugan, the Chief Investment Officer of Merrill Lynch. Dugan termed his apprehensions of gold striking such a high as a ‘fear’ that may come true. He reasoned that such a price would mean the other commodities and streams of investments have been shunned by investors.
With confidence in currencies shaken to the core, the yellow metal is increasingly assuming the role of “the most trusted currency”, Dugan said. “We have never seen such a rush to buy gold. It’s bringing in security and it’s still affordable,” he noted.
Merrill Lynch commodity price forecast authored by Dugan showed that gold prices can rise from the currently prevailing $913 per ounce to $1,100 in the first quarter of 2009 and to $1,150 in the second quarter. Reason enough to cheer. “While demand for gold has been rising, production has been declining. South Africa, which accounts for the major share of global gold production, is facing political issues and has energy problems,” Dugan said.
Fear and eventual decline of the greenback are the two factors that will drive gold prices, he said. While commodity markets could also bounce back in the first half of the year, a rebound is likely to be short-lived in the absence of strong US consumer demand. In other words, precious metals, led by gold, could enjoy a more sustained rally with gold benefiting from a weakening of the dollar in the second half of the year.
As the world’s leading industrialised nations face recession, low risk assets could offer private investors the best prospects of attractive returns in 2009. With governments around the world striving to tackle the economic crisis, private investors could find value in a cautious approach towards asset allocation, analyst maintain.
World over, investors are continuing to pour into gold to safeguard their wealth from a weak currency and economic outlook. The spot price of gold hovered at around $913 an ounce last week, - 20 per cent more than the $720 it fell to in October though it is still $97 off its high of $1,011 in March last year.
Inflows into gold exchange-traded funds, which allows one to track the metal’s price on the London Stock Exchange, are at record highs with an inflow of $581 million (Â£396m) in the last week of January. ETF investors now own more gold than the Japanese and Swiss governments.
UBS strategist John Reade said: “Purchases of physical gold have jumped over the past six months as investors’ fears about the financial crisis and the possible outcomes from government efforts to support banks and economies have intensified.” UBS raised its gold forecast for 2009 saying it will average around $1,000 an ounce compared with its previous forecast of $700.
Others like Hector McNeil of ETF Securities are more bullish. He said: “Though gold’s value is relatively high, it is still less than half its price at the peak when it reached $2,300 an ounce on an inflation-adjusted basis,” he told a financial newspaper.
Graham Birch of the Black Rock Gold and General fund said: “Gold operates outside the banking system. It will retain its value even if the banking system collapses.”
Be that as it may, analysts the world over are bullish on the precious metal.
Even gold producers are stock piling. Kinross Gold Corporation (Toronto:K.TO), a gold producer in North America, reported on February 5 that the company has concluded a deal offering its common shares at a price of $17.25 per share on its common stock, from a previous agreement. Additionally, the underwriters elected to exercise their over-allotment option in full prior to closing, for a total of 24,035,000 shares on its common stock, to raise gross proceeds of $414.604 million.
The company said it proposes to utilise the net proceeds of the offering to enhance its capital position following the funding of recent acquisitions and for general corporate purposes.
Meanwhile, the Russian government said that it had cleared Canada`s Barrick Gold to increase its stake in the Fedorova Tundra deposit in Russia`s Murmansk Region to 79 per cent from 50 per cent.
The Russian move comes at a time when the Norwegian government has sold out all its shares following a strong pressure from Norwegian human rights and environmental groups.
Barrick Gold (TSX: ABX), the world`s largest gold miner, has a joint venture with Russian exploration company Pana that holds the license to develop the platinum group metals (PGM) deposit. According to preliminary data, the deposit’s reserves amount to about 100,000 tonnes of ore with 0.35 grammes of platinum per tonne, 1.4 grammes of palladium per tonne, and 0.09 grams of gold per tonne. The ore at the deposit also contains 0.078 per cent nickel and 0.126 per cent copper.
According to earlier reports, Barrick planned to launch production of PGMs at the deposit and invest $770 million along with Pana.
Higher grade gold has also been discovered in Saudi Arabia. ASX-listed minerals project development company Citadel Resource Group has announced that it has received further high-grade assay results from the second drilling program at the company’s 100 per cent-owned Shayban Gold Project in Saudi Arabia. The RC program continues to deliver high-grade primary and oxide gold that further upgrades the Shayban deposit. Gold assay results have been received for a further six reverse circulation drill holes of the continuing 36 hole drilling program. The high grade gold intersection of one drill holeÂ suggests that the high-grade gold zone is still open to the east.
Citadel (ASX:CGG) has a portfolio of gold and base metals projects in Saudi Arabia, with its operations headquarters located in Jeddah. Citadel is one of only a handful of Western mining companies operating in Saudi Arabia. The VHMS and precious-metal epithermal deposits of the Ariab-Samran-Shayban mineral belt form a world-class mineral province that are likely to deliver further discoveries in the near future.
Ines Scotland, Citadel CEO, said in a recent presentation, “Saudi Arabia has some very attractive features and was attractive to mining business. She noted that mining businesses in the Kingdom could be 100 per cent foreign owned-and in the case of Citadel, eight out of the nine in the Kingdom are-and that after 20 per cent corporation tax, 100 per cent of the profits could be exported.”