The Hindu Business Line : Will gold top $1,000?

Chennai, Nov. 4 Two years ago, when Newmont Mining Corp predicted that gold would touch $1,000 an ounce, there were not many takers. Nor were there many when a few others mirrored it in March last year. But this weekend, when gold prices topped $800, many seem to be veering towards that view.

The next target for some is $850 and others are already preparing for $900. Kotak Commodity Services Ltd, for instance, says gold can easily top $900 soon.

fundamental demand

Experts see the bull run of gold, which had languished between 1980 and 2000, continuing for the seventh year. Chances are that fundamental demand could drive it further higher, according to Mr Richard J. Greene of Thunder Capital Management.

According to him, real money demand buyers of gold and silver will be opting for real gold, something that has not happened until now. Once real money demand takes off, there is no way to gauge how far it can go and what kind of panic may exist to get out of all paper.

“We clearly see that day on the horizon. Most people are totally oblivious to these possibilities and have no understanding why these gold and silver alternatives are just that – alternatives,” he says.

What has happened is that demand for gold jewellery has exceeded mine supply with central banks making up the shortfall from their reserves. The bull market so far has had little room for investment demand, which had been solved by issuing de-materialised certificates. There is a strong suspicion as to how these de-materialised certificates will be honoured, especially if currency values decline.

“We have little doubt that there is not even close to the amount of physical gold and silver that is promised by the paper gold and silver crowd. We are especially suspect of the gold and silver ETFs due to their custodial and sub-custodial arrangements, and particularly due to their sponsorship by underwriters that are among the biggest short sellers and enemies of a free market in gold and silver,” Mr Green says, adding this could create a new fundamental demand for gold and silver that can be differentiated from investment demand.

According to Mr Richard Russell of 321gold.com, the dollar has lost 80 per cent of its value. There is a real question to where the dollar could be headed in the next 15-20 years. With the talk of gold not keeping up with inflation, chances of the yellow metal rising are high. In fact, he says it is “fated to rise to impossible heights”.

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