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Gold May Fall 6.4% in 2005, Ending 4-Year Rally, Mitsui Says

Gold May Fall 6.4% in 2005, Ending 4-Year Rally, Mitsui Says

April 7 (Bloomberg) -- Gold prices may fall 6.4 percent this year, snapping a four-year rally, as U.S. interest rates rise, eroding the appeal of the metal as an alternative investment to the dollar, Mitsui & Co. said.

Prices of gold may average $410 an ounce this year, from $438 in 2004, Tim Gardiner, president of precious metals trading at Mitsui, Japan's second-biggest trading company, said today at Paydirt's Gold Conference in Perth.

The precious metal has risen every year since 2000. The New York Board of Trade's Dollar Index, which weights the currency against six others, has fallen every year since 2001. Gold has fallen 4.4 percent from a March 11 two-month high of $447.05 on speculation of more interest rate rises after the Federal Reserve increased rates seven times since June.

``The rate of price increases in gold appears to be slower and may turn negative in 2005,'' New York-based Gardiner said. ``We believe the big fall in the U.S. dollar is over. The Fed can continue to raise interest rates, where others, such as Europe and Japan, can't or won't.''

A forecast global economic slowdown because of U.S. rate rises may hurt Australian gold miners less than producers of industrial metals, Bill Evans, general manager of economics at Westpac Banking Corp., said.

Copper and nickel prices have more than doubled in the past two years on Chinese demand as gold prices rose 32 percent. A slowdown in the U.S. economy may slow China's growth because it will mean the U.S. will buy less of China's exports and invest less in the Asian country, Evans said.

``Because you haven't benefited as much on the way up as the other commodities, on the way down you will probably be less affected,'' Evans said in a presentation to gold miners at the conference today. ``We are going into a period where commodities are going to be turning down but it doesn't necessarily follow that the gold price will turn down by anywhere near as much.''

To contact the reporter on this story:
Matt Chambers in Melbourne at [e-mail]

To contact the editor responsible for this story:
Keith Gosman at [e-mail].


LINK: http://quote.bloomberg.com/apps/news?pid=10000080&sid=aCQzwIgABWYs