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Gold price set to test $1000 in 2008 - extended

The price of gold is set to remain high in 2008, putting it on track to break $1,000 an ounce for the first time, as the yellow metal continues to offer investors a safe haven from volatile financial markets and supply remains tight. - Gold above $830 on weaker dollar, Bhutto’s death.

During 2007, the price of gold has traded in a $243.50 range, from a low of $601.90 in January and a high of $845.40 in November, as investors sought a hedge against rising global inflation and equity, debt and foreign exchange markets wobbled. In 2008, gold is tipped to rise to a 28-year high of $850 in the Q1 as financial markets jitters prevail, and could reach as high as $1,100 by December, market watchers say. The chief executiv of the world’s third largest gold producer, AngloGold Ashanti, Mark Cutifani, is very confident about ongoing strength of the gold price. „You can take gold anywhere in the world and there will be a buyer, which can’t be said for many other commodities,” he told AAP in an interview. Cutifani predicts gold to remain above $US800 in 2008 on the back of heightened demand, „not taking into account factors such as the high oil price and instabilities in currencies.” „Whether the macroeconomic environment will exert greater pressure on gold will be seen,” he added. But while industrial development in China and India is putting upward pressure on many commodity prices, the cost of producing gold is now more than $700 per ounce, resulting in slimmer margins for producers. „On the supply side, we’ve seen a decline of three to four per cent in 2007,” Cutifani said.

Fat Prophets senior resources analyst Gavin Wendt agrees that gold supply will remain tight, with mine closures and fewer new discoveries, and as the cost of mining gold becomes more expensive. He believes its only a matter of time before the gold price moves up to $1,000 mark. „All of the factors that have been at work over the past few years, pushing the gold price higher, are very much still in play,” Wendt said. „We’re going to see further weakness in the US dollar, which has to be positive for gold. „We’ll see the continuation of strong oil prices and that inflationary effect will be positive for gold.”

In August, the vice chairman of one of the world’s biggest gold miners - Newmont Mining Corp’s Pierre Lassonde - told a gold conference in Western Australia that the price of gold would break $1,000 within the medium term. The predictions Lassonde, a well-known gold bull, have already proved prescient, even if his timeframes have been shortened by market events. He correctly forecast gold to „attack” the $750 level, which it did in October 2007. Lassonde sees gold trading at more than $850 early in 2008, particularly if the US economy slips into a recession. Forecaster Argonaut Securities also expects the gold price to strengthen in 2008, with key support being driven by its role as a safe haven financial asset.

The World Gold Council says gold offers good protection against exchange rate fluctuations, particularly the US dollar. Head of external relations Matt Graydon says there’s little prospect of an increase in mine production in 2008. But demand for gold will continue as investors try to hedge against inflation and counter market volatility. „If the (US) dollar is going to continue to decline and inflation is expected to rise, that makes for an uncertain outlook for equities,” Graydon said. Commodity Broking Services managing director Jonathan Barratt says rising inflation in China will also make gold more attractive. „Gold has managed to hold up very well and we still have tight supply,” Barrett said. „The focal point is ... inflationary pressures in China and the fact they will export a lot of this inflation to everyone. „The potential for inflation to really pick up, whether it is a consequence of the oil price or China, is a major concern that has to be looked at.”

The World Gold Council’s Graydon said the worsening of geopolitical tensions could also add to the case for a higher gold price. „Gold has a very long track record as a hedge against the reserve currency of the day ... as a protection against inflation ... as an insurance against political turmoil,” he said. „Most importantly, it offers diversification benefits. Gold has low to negative correlation with mainstream investments - for example, equities, bonds, real estate - and this is particularly helpful at a time when the performance of other assets is becoming increasingly synchronous. Gold is less volatile than other investments - over the long run gold is less volatile than the US S&P 500 index, and this also applies to equity indices in other countries.”

In 2007, investors drove record inflows into gold exchange traded funds (ETFs), helping to push total demand to a new record of $20.7 billion in the September quarter, up 30% from a year earlier. Through the funds, investors buy physical gold, gaining a direct path to gold price exposure. Confidence that the gold price will continue to rise has also led many of the world’s largest gold companies to close down their hedge books to get exposure to spot market prices. According to figures collated by investment bank Societe Generale, the global gold hedge book is now at its lowest level since 1992. Companies that have closed or reduced their risk include the world’s top two gold producers Canada’s Barrick Gold Corporation and Newmont, Beaconsfield Gold NL, View Resources, Lihir Gold, Red Back Mining and Australia’s largest miner, Newcrest Mining. Cutifani confirmed in December that AngloGold Ashanti would close its hedge book. „We’ll make a strategy statement in February about our long term approach,” he said. (

Gold futures rose for a fourth day Thursday and closed above $830 an ounce as a sliding dollar gave the precious metal fresh momentum and as the assassination of former Pakistani prime minister Benazir Bhutto increased geopolitical uncertainties. Gold for February delivery ended the session up $2.3, or 0.3%, at $831.8 an ounce on the New York Mercantile Exchange. The contract earlier rose to an intraday high of $835.5, the strongest in a month. Gold futures have moved up nearly $30 an ounce since last Friday. „If gold prices needed any excuse to continue to trade at their highest levels in a month, they got it today,” said Jon Nadler, senior analyst at Kitco Bullion Dealers, pointing to Bhutto’s assassination. (marketwatch)