The Hindu Business Line : Gold prices may scale new high in early 2009

New Delhi, April 10 The ongoing secular bull market for gold would sustain itself for at least three more years and the yellow metal would probably make a new high as one enters 2009, according to Mr Joseph M Foster, Portfolio Manager, Van Eck International, New York.

Stating that financial uncertainty and stressed credit markets were driving gold prices, Mr Foster, who manages AIG PB Equity Fund Gold and other gold funds, told Business Line here that the gold market was currently going through a consolidation phase. Gold price hit a high of $1,030 an ounce in mid-March this year.

“Once this phase of consolidation runs its course, more investors will come back to gold and will see it move higher as we approach the year-end and probably make a new high as we move into 2009. In the longer term, all the fundamentals are in place for this bull market to sustain itself for at least another three years in my view. You look at the stress in the credit markets, supply demand picture for gold, it is all very positive for the gold environment,” he said.

Mr Foster was here on the occasion of the launch of AIG’s World Gold Fund, which is an open ended fund of a funds scheme that would invest predominantly invest in units of AIG PB Equity Fund Gold.

The AIG PB Equity Fund Gold invests worldwide in stocks issued by companies engaged primarily in the extraction, processing and marketing of gold.

Meanwhile, on whether he expects the International Monetary Fund’s plan to sell 400 tonnes of gold to affect the market, Mr Foster said that any such move would not have much impact at all.

“First of all we are not sure they (IMF) are going to make the sale, as it has to be approved by the US Congress. In the past every time IMF has proposed to make the sale, Congress has voted it down. That remains to be seen. If they do make the sale, that would be done under the auspices of central bank gold agreement. The UMF is part of the agreement.

European central banks are selling gold under this agreement. The members to the agreement (including IMF) cannot cumulatively sell more than 500 tonnes a year. “So IMF’s plan is already pretty much priced in the market. It would not have much impact at all,” he said.

He also highlighted that the easy monetary policy stance adopted by most central banks, including the US Federal Reserve, was a positive move for gold as more liquidity is pumped into the financial system.

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