||(Rapaport...AAP Information Services, PERTH) Gold has broken its shackles, surging past the magical $500 an ounce mark, and it may just be the beginning of a new gold boom. |
In late November, the spot price of gold finally followed up on its threats and pushed through the psychological barrier of $500 an ounce. The last time it touched these highs was when Alan Greenspan became chairman of the United States Federal Reserve.
It was 1987, and gold reached a high of $502.97 an ounce on the spot market. Today, many analysts are tipping the gold price will not just break the $500 mark but will leave it in its wake.
Ord Minnett research director Russell Lander believes we could just be at the foothill of a gold boom bringing with it gold fever.
"Gold really does affect people's mood...and people become very irrational, get excited and they rush into stocks," he said. Gold is also considered a safe haven in times of political instability or economic pressure.
Recently the rising oil price and fear of increased inflation has seen investors flock to the precious yellow metal, said CommSec commodities analyst David Thurtell. "Some people like it as an inflation hedge and, since the terrorist concerns started, some people have used it as a bit of a safe haven," he said.
But as the price of oil eases, inflationary concerns are being replaced with concerns about missing an investment opportunity. Thurtell expects gold will continue its run for the first half of 2006, possibly reaching $550 an ounce.
"Then we could see a bit of a demand reaction and a bit of a supply response," he said. By the end of 2006 the spot price of gold could pull back to around $475 an ounce, according to CommSec.
Renowned gold tipper and head of the world's biggest gold miner Newmont, Pierre Lassonde, has said the price could reach $1,000 an ounce over the next five to six years, passing the record price in 1980 of $850 an ounce.
Fat Prophet senior resource analyst Gavin Wendt is tipping a price of $550 an ounce by the middle of next year and said there were a number of reasons behind the buoyant gold price.
"We are seeing production starting to decline from the three major sources of gold production being Australia, South Africa, and North America," Wendt said. He estimated global production in 2005 would be around 300 tonnes, falling from 2004's total output of 346 tonnes.
"If you went back around 10 years ago production was up around 1000 tonnes." The World Gold Council said demand for gold has been growing for almost two years with the Middle East, China, and India underpinning the demand.
Demand traditionally increases in the fourth quarter of the year when the Indian jewelry season kicks off. And as with most metals, China accounts for some demand, with the growing middle class keen to showcase their new found wealth, according to Daiwa Securities analyst Mark Pervan.
"In India we are seeing very strong economic growth very similar to China at the moment," he said. "Indians love showing off their wealth through gold and jewelry." Also driving demand is a move by a number of central banks, notably Russia and South Africa, to acquire more gold.
While a booming gold price will fatten the coffers of gold miners, it is also an opportunity for investors. Pervan and other analysts believe smart investors will be putting their money into gold stocks. Newcrest Mining, Lihir Gold, Newmont Mining, and Indophil Resources top the list of the most likely to generate a return on investment.