Gold set for more record highs

HSBC analyst James Steel said he expected gold to break through its current record high at $1,248.95 an ounce,set in May,in the third quarter.

If the issues that are affecting euro zone debt shift across the Atlantic… that is when we would look for the dollar to weaken and for gold to (break higher),he said.

Steel said accommodative or loose U.S. monetary policy was positive for gold,both because it helped support economic growth and therefore global commodities demand,and as it cut the opportunity cost of holding non-interest bearing gold.

Concern over the outlook for the euro,which has fallen nearly 15 percent against the dollar this year,is also fuelling a rise in gold investment,particularly in Europe,Nicholas Brooks,head of research at ETF Securities,said.

It seems across the board to be Europeans who are buying gold,whether it is coins or bars or ETFs,he said. The clear logic is that European investors are worried about the euro.

The concern is what happens to the euro in the next three to five to 10 years,he added. A lot of investors (are) looking at gold and commodities generally as an alternative.

I don’t think they are selling all their euros and buying gold,but a lot of conservative investors,very large investors,who before had never held any gold are now looking at gold.

Strength in the dollar,usually a major drag on gold prices,is unlikely to impact the metal as long as the current crisis of confidence in the financial markets continues,Steel added.

GOLD ETF HOLDINGS SEEN FIRM

ETF holdings are likely to remain steady,he said,as the ETF buyer tended to buy gold for inheritance purposes,as a portfolio diversifier and as a hedge against inflation. That could mean this gold is off the market for a very long time.

Brooks said,however,that platinum and palladium ETF holdings may be more sensitive to sharp price falls. Both metals are primarily industrial in use,and are chiefly consumed by the car industry for use in catalytic converters.

Some investors do look at them as a store of value with precious metals characteristics,but most are looking at them as an industrial play,he said. There are certainly investors who are a little bit more tactical than you might find in gold.

So far our holdings have been very stable despite the very sharp fall in prices,he added. (But) if the price correction were to continue… we might see more outflows ultimately than you may see in gold.

Peter Duncan,general manager of market research for metals refiner Johnson Matthey,said he was still generally positive on platinum and palladium prices this year,however.

He said industrial demand for the metals was relatively price inelastic,and Chinese jewellery demand — a major support to prices last year — had tended to adapt to higher prices.

Platinum and palladium outperformed other precious metals early in the year but saw a sharp correction in May.

Overall,the markets are tight,industry is recovering,the car industry is coming back very strongly,he said. Maybe there was a bit of a bubble and (prices) went too high,too soon. But fundamentally,the markets look strong.