Gold Prices May Top $2,000 This Year on 'Confidence Crisis'

Gold will likely break the $2,000 an ounce mark this year according to a Bloomberg survey, and will continue rising throughout next year as well. The metal is climbing on escalating debt woes and and concerns over the slow growth that is occurring in the United States.

Joe Richter, ©2011 Bloomberg News
Tuesday, September 20, 2011
San Francisco Chronicle

Sept. 20 (Bloomberg) -- Gold will probably top $2,000 an ounce by year-end amid surging investor demand, a Bloomberg survey showed.

Prices will rise to a peak of $2,038 before Dec. 31, based on the average of 16 respondents in a Bloomberg survey at the London Bullion Market Association's annual conference in Montreal. Next year, gold will rally as high as $2,268, according to the average in the survey.

Gold has surged 25 percent this year, touching a record $1,923.70 in New York on Sept. 6. The metal climbed as escalating debt woes in Europe and the prospect of faltering U.S. growth boosted demand. Today, gold futures for December delivery advanced $4.80, or 0.3 percent, to $1,783.70 at 9:13 a.m. on the Comex in New York.

"This is largely a crisis of confidence, and gold is a safe haven," Rujan Panjwani, the president of Edelweiss Financial Services Ltd., said in an interview at the conference. "I see little chance of gold falling."

Gold is in the 11th year of a bull market, the longest winning streak since at least 1920 in London, as investors seek to diversify away from equities and some currencies. Holdings in exchange-traded funds backed by the metal have jumped 31 percent in the past two years, reaching a record 2,260.5 metric tons on Aug. 8.

The Federal Reserve has kept U.S. borrowing costs at a record low near zero percent and conducted two rounds of asset purchases, or so-called quantitative easing, in a bid to boost growth. Greek Prime Minister George Papandreou's government will hold another call with its main creditors after a "productive" round of talks aimed at staving off default.

'Bullish Environment'

"We're going to continue to be in a bullish gold price environment for the next five to seven years," Richard O'Brien, the chief executive officer of Newmont Mining Corp., said in an interview at the 2011 Denver Gold Forum in Colorado Springs. "It's going to take that long for people to get their fiscal house in order."

Gold prices may have already peaked this year, and won't climb higher than $2,000 in 2012, according to Dipankar Basu, a manager and dealer at the State Bank of India.

"If we see signs that the U.S. and European economies are improving, we will see a sharp correction, and we could see that within maybe six months," Basu said in an interview in Montreal.

Prices may rally through June before dropping, according to Gerhard Max Schubert, the head of precious metals, consumer banking and wealth management at Emirates NBD.

Exit Strategy

"People should look for an exit strategy in the second half of next year," Schubert said in an interview in Montreal. "Nothing is going to happen in U.S. policy until the presidential election, and it gives a year to sort things out in Europe and come up with a credible solution."

Rising consumption in India and China, the world's top gold buyers, will continue to support prices, and the next 10 to 20 years will be "defined" by increased purchases in Asia, Pierre Lassonde, the chairman of Franco-Nevada Corp., said during a presentation at the Montreal conference.

"There's very broad-based global demand," Mark O'Byrne, the executive director of GoldCore Ltd., a brokerage, said in an interview in Montreal. "The monetary, geopolitical, macroeconomic and systemic risks are driving it, and until those risks are reduced somewhat, the outlook is fairly sound."

--With assistance from Sonja Elmquist in New York. Editors: Millie Munshi, Steve Stroth

To contact the reporter on this story: Joe Richter in Washington at jrichter1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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