Gold to Jump to Record $1,300 as Investors Shun Euro

By Aya Takada and Yasumasa Song – Jun 18, 2010

Gold may climb to a record $1,300 an ounce this year as investment demand shifts from the euro and the dollar, said Bruce Ikemizu at Standard Bank Plc.

The U.S. and European currencies may lose their appeal as developed economies underperform emerging markets such as China, said Ikemizu, the head of commodity trading and managing director at the bank’s Tokyo branch. As there is no immediate replacement for the dollar and euro, demand for gold will grow, he said in an interview yesterday.

Gold for immediate delivery traded at $1,243.80 an ounce today, near its record $1,252.11 on June 8, as the dollar weakened on signs the U.S. recovery was slowing and on concern the European sovereign-debt crisis will persist. “We have just entered Act II,” billionaire investor George Soros said June 10, as Europe’s fiscal woes worsen and governments are pressured to curb budget deficits that may push the economy into recession.

“The U.S. will never regain its dominance in the world economy” as growth is driven by emerging economies, said Ikemizu, who has spent 24 years trading gold since starting his career at Sumitomo Corp. “Gold is drawing attention” as it will take a long time for the dollar to be replaced by another currency in trade and investment, he added.

Initial U.S. jobless claims increased by 12,000 to 472,000 in the week ended June 12, according to Labor Department figures yesterday, signaling the labor market may not be improving and reducing prospects for a sustained recovery. Economists surveyed by Bloomberg News projected the number of applications would drop to 450,000, according to the median forecast.

Euro, Gold

The euro has slumped 14 percent against the dollar this year on concern Europe’s debt crisis may spread, while gold denominated in the U.S. currency has advanced 13 percent and is heading for its 10th annual gain.

Concern over the value of the U.S. and European currencies may spur central banks in China, Russia and India to add gold to their reserves as their holdings are small, Ikemizu said.

“It is risky for them to depend heavily on U.S. treasuries, given the possibility of a further decrease in the dollar,” he said. “Gold may be their option as it is nobody’s liability.”

Official sector sales of gold slumped by 82 percent to 41 tons last year from 232 tons in 2008, according to GFMS Ltd., a London-based research company. Central banks may turn to a net buyer of bullion this year, Ikemizu said. In November, India surprised markets with a $6.7 billion purchase from the International Monetary Fund’s bullion holdings.

Scrap Supply

An increase in prices may be gradual as scrap supply will grow, Ikemizu said. The metal may find support around $1,200 an ounce for the rest of the year as physical buying will increase below that level, he added.

Gold may drop to $1,180 an ounce this year if investment demand slows as rising prices curb consumption by jewelry makers and other fabricators, said Shuji Sugata, research manager at Mitsubishi Corp. Futures Ltd. in Tokyo.

Platinum is expected to trade between $1,500 and $1,800 an ounce for the remainder of the year as demand in vehicle emission-control devices will climb, he said.

“Car ownership in China and India will continue to expand,” he said. Demand for cars, sport-utility vehicles and multipurpose vehicles increased 26 percent from a year earlier to 1.04 million units in May on a wholesale basis, compared with a 33 percent jump in April, the China Association of Automobile Manufacturers said June 8.

Domestic sales of passenger cars in India rose 30.5 percent in May from a year ago, compared with a 39.5 percent growth in April, Society of Indian Automobile Manufacturers figures show. Platinum will be supported around $1,500 an ounce as a drop below that level will make about 80 percent of producers unprofitable, leading to output cuts, Ikemizu said.

Platinum for immediate delivery lost 0.3 percent to $1,573 an ounce at 4:07 p.m. in Tokyo.

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