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Credit Suisse Upgrades Gold Price Assumptions

*Still... check out how low these numbers are... $GOLD still gets no respect!!!>>>

Credit Suisse Upgrades Gold Price Assumptions
December 08 2005 - Australasian Investment Review – (AIR)

Credit Suisse believes there are a number of catalysts which suggest the gold price should stay stronger for longer, and has subsequently upgraded its assumptions.

The analysts’ fourth quarter 2005 average price rises from US$450/oz to US$486/oz, first quarter 2006 from US$450/oz to US$500/oz, second quarter 2006 from US$450/oz to US$475/oz, second half 2006 from US$420/oz to US$450/oz, and full year 2007 from US$400/oz toUS$430/oz. Long-term average remains unchanged at US$400/oz.

Catalysts for these assumptions include, firstly, the macro environment. The close inverse relationship between the gold price and the US dollar has essentially evaporated, says Credit Suisse. While the analysts believe changes in the US dollar will remain an important influence on the gold price, it is increasingly not the only macro issue influencing the gold price. For example, concerns regarding the possibility of sustainability of higher energy prices, and concerns regarding the long-term implications from the US Budget and Current Account deficits are also feeding positive sentiment for gold.

Secondly, the pace of the central bank selling may slow. Central banks have been net sellers of gold every year for the past 16 years, accounting for 12%–16% of annual global gold supply during 2000–04. However, with the USD proportion of total reserves held in gold among the largest central banks declining from 33% in 1990 to 12% by year-end 2004, and with nominal gold prices increasing, Credit Suisse believes the incentive for central banks to aggressively reduce gold bullion holdings is diminishing, with some recent indications suggesting certain (potentially significant) central banks are shifting to buying gold.

Thirdly, full-year 2005 mine supply is on pace to be 5% below the 2001 peak, with output from the top three producing countries declining 20% during 2000–04, Credit Suisse reports. Declining reserve grades, continued production challenges, and ongoing reserve replacement issues suggest the global mine supply constraints will continue at least for the next two to three years.

Finally, jewellery demand accounted for 77% of global gold demand in 2004 (including investment demand). Jewellery consumption increased 11.7% year-on-year during the first nine months of 2005. While jewellery demand stalled in 3Q05, thus far quarterly demand trends have been surprisingly robust, the analysts note, considering the substantial increase in underlying gold bullion prices.

That’s the good news. The bad news is that Credit Suisse believes Australia’s gold producers are overbought, and the analysts have set Underperform recommendations on Newcrest (NCM), Lihir (LHG) and Oxiana (OXR).


LINK: http://www.aireview.com/index.php?act=view&catid=8&id=3237