$1,300 on Double Dip, GFMS Forecasts

Print This Post | Topic: Gold — June 8th, 2010

This is an interesting view of gold prices in the context of a possibility of a double dip recession by Aya Takada and Yasumasa Song on Bloomberg Business Week. If you are short on gold then you may want to pass on this one.

June 8 (Bloomberg) — Gold, trading within 1.5 percent of a record, may rally to an all-time high as investors seek a haven for their wealth, including protection from a possible double- dip recession in the global economy, according to GFMS Ltd.

The metal is expected to trade between $1,050 and $1,300 an ounce for the rest of the year, and may rally to as much as $2,000 should the sovereign-debt crisis spread beyond Europe, possibly to the U.S., Chief Executive Officer Paul Walker said in an interview. Gold may also surpass platinum prices, he said.

Gold has increased 13 percent this year as Europe’s fiscal crisis has weakened the euro and rattled global financial markets. Deutsche Bank AG said June 3 that gold may surge to $1,700 as currencies slump, according to Michael Lewis, head of commodities research at Germany’s biggest lender.

“What’s happening in Europe at the moment increases the probability that we will see a double dip,” said Walker, who joined the independent, London-based research company, which produces an annual market survey, in 1995. “The investment case for gold is going to remain robust for the rest of this year.”

Gold reached a record at $1,249.40 an ounce on May 14 and has surged almost five-fold since touching a 20-year low in 1999. The precious metal for immediate delivery was at $1,238.71 an ounce at 8:38 a.m. in Singapore, on course for a 10th annual gain.

‘Economic Crisis’

“If there is a double dip, it will be a reflection of a long-term economic crisis” and that may be good for gold, Walker said yesterday from Tokyo. Any increase in investment will likely “push gold towards $1,300,” he said.

The euro has tumbled to a four-year low against the dollar amid investor concern that Europe’s debt crisis may engulf Hungary, spreading beyond Greece to Eastern Europe. European finance ministers put the finishing touches yesterday to a rescue fund being backed by 440 billion euros ($524 billion) in national guarantees, seeking to halt the turmoil.

Walker didn’t rule out the possibility that the sovereign- debt crisis may expand from Europe to other regions. That may push gold “significantly higher” than $1,300 an ounce, or by a further $500 to $700, he said.

“If you look at the United States, compared to Europe as a single entity, in many respects the U.S. looks worse than Europe,” Walker said. “The U.S. government has got a budget that is getting worse every hour, every day.”

Have a good one.