Bullion bullish but beware bears

RICH PICKINGS: A worker scoops gold shots at a Japanese jewellery factory. Bullion is bullish some analysts say, after gold flirted with US$1200 an ounce, as demand for the metal continues because of global financial uncertainty.

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The price of gold, now near nominal highs at more than US$1180 an ounce, is expected to climb further, analysts say.

However, they warn New Zealand investors should be wary of exchange rate fluctuations.

Fund manager Liontamer, a specialist in capital protected funds, said the price could rise more than 15 per cent to over US$1400 an ounce by December 31, and continue rising well into 2011.

Investment manager Sean Butler said there was fundamental support for the gold price at current levels. "Central banks in China, India and Russia continue to buy gold, and investors are building up their gold exposures in the wake of global market uncertainty and the risk of higher inflation.

"In the meantime, the supply of gold is tightening. A combination of reduced supply and the large set-up costs associated with setting up new mines is helping to set a new floor under the price of the precious metal," Butler said.

OM Financial senior dealer Kevin Morgan said the price "could be comfortably above US$2000 an ounce within 18 months", but saw a possible dip to US$1050 in the next two months.

"I would view that as a buying opportunity," Morgan said, but cautioned anyone investing in gold to remember that it is priced in US dollars and subject to currency fluctuations.

"A New Zealand investor who purchased gold in early 2009 at US$900 an ounce would actually be losing money despite gold being 25 per cent higher at US$1200 an ounce today.

"The reason for this is that back in early 2009 the NZD [New Zealand dollar] was trading at about 0.5 to the USD [United States dollar] and today we are trading closer to 0.72," he said.

Gold closed in Sydney yesterday at $US1193.30 per fine ounce, down $2.83 on Friday's close, after briefly crossing US$1200, on bargain hunting and purchases from jewellers. But investors were on the sidelines after a European bank stress test showed few surprises and failed to spur safe-haven buying last week.

Platinum rose to US$1550.50 an oz, its highest since late June, on fund buying driven by gains in equities.

"There's a bit of buying from jewellery makers. I think investors are on the sidelines. The price is a bit too high and there are other things which are more attractive for investment," Ronald Leung, director of Hong Kong's Lee Cheong Gold Dealers, said. "Sentiment for gold is a bit flat.

"Stocks have obviously been bullish. I think gold may have a chance to test $US1180," said Leung, referring to a low seen last week and a possible shift from gold to equities.

The world's largest gold-backed exchange-traded fund, SPDR Gold Trust said its holdings were flat at 1302.046 tonnes. The holdings hit a record at 1320.436 tonnes on June 29.

US gold futures for August delivery added $US4.4 to $US1192.2 an oz, after settling nearly $US8 lower following the European stress tests.

"I think we are seeing a combination of a thin market plus physical buying, especially when prices were hitting lows," a physical dealer in Singapore said. "But the demand doesn't seem to be as tremendous as the last round," he added.

Money managers cut their long, or bullish exposure, to US gold futures 18 per cent for the week to July 20, as the precious metal's prices hit two-month lows, trade data on Friday showed.

Silver was steady and palladium gained more than US$2.

- © Fairfax NZ News