As Citigroup analysts forecast a doubling in the price of gold... we show you the best way to enter the market... and when...
The recent correction in gold appears to be over... for now... and the long-term outlook for the metal is as strong as ever.
Recent falls were down to concerns over US interest rates and the momentum in the oil price. The Fed really does not have much scope left to cut interest rates, but inflationary pressures are building.
With oil and food prices rising, gold has become attractive as a hedge against inflation, rather than a hedge against the tumbling dollar. Some investors are also seeing it as more attractive than oil, as talk of an oil bubble fills the financial pages.
Concerns over the Fed’s lack of ammunition do not mean that I expect the dollar to strengthen. Long-term, I expect Middle-Eastern Sovereign Wealth Funds will switch their petrodollars to assets in other currencies. They will buy businesses in the UK, eurozone, Asia, Australia and Latin America to diversify.
Once this has happened, any switch to pricing oil in currencies other than the dollar will not hit their own reserves. Should Gulf States abandon using the dollar in oil contracts, the currency would plunge. This will mean the wealth of all these countries would also plunge, as their weal takes the form of petrodollars. It has to be an orderly exit.
So, gold has become attractive again as inflationary pressure builds. The price was helped yesterday by a note from US banking giant Citigroup.
The broker noted that a slight strengthening of the dollar and a seasonal slowdown in fabrication may be working against gold - but the broker was bullish in the longer term.
Mining and metals analyst John Hill told clients that the mix of macro and supply/demand factors, along with the same forces that have pushed gold higher for the last five years, give him good reason to remain bullish on the yellow metal.
Hill predicted that prices would climb in 2009 and 2010, but he said a significant lift might not be seen until autumn, when fabrication constrained supplied.
By "fabrication constrained supply" he meant that this is the season for jewellery manufacture, which eats up all mine supply.
"Longer term, we would not be surprised to see gold double from current levels as the global policy prescriptions for the credit crunch remain powerfully and uniformly reflationary."
However, nothing ever goes up in a straight line. We’re positioned to pile into what we believe is the best gold play on the market, when it dips below $900.
Discover what this play is, why we think it’s the best... and why you should buy it exactly when I say...
Regards,
Garry White
Editor
Smart Commodities UK
