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Analysts see gold strong on funds and fundamentals

Analysts see gold strong on funds and fundamentals
venerdì dicembre 9, 2005 9.10 168

LONDON (Reuters) - Gold's bull run is likely to continue in the near term as the metal is getting tremendous support from investment funds and positive fundamental factors, analysts said on Thursday.

Gold demand was seen surpassing the mine supply and the move to develop new mining ventures had been slow despite prices surging to their highest level in more than 24 years, as production costs had sharply risen.

"We have got a very positive scenario in the short term. From a trading point of view, there is still room for further strengths in prices," said Alan Williamson, head of commodity research at HSBC Bank.

"At the moment, gold is clearly very much in flavour. Gold is now rallying in all currencies," he told a gold investment summit organised by Euromoney Seminars.

Spot gold prices have risen nearly 20 percent this year on heavy buying by funds who have been diversifying their portfolios into commodities for better returns and on fears of inflation and economic growth.

"Gold still has some upside potential," said Paul Walker, chief executive officer of GFMS Limited, a precious metals research consultancy.

He said gold prices were expected to continue to rise in 2006 and it was not impossible to see gold spiking to $850 an ounce in 12 to 18 months. Physical markets have also been supporting the price rise, he said.

Physical demand for gold was expected to rise to 3,957 tonnes in 2005 from 3,840 tonnes in the previous year, while mine production was seen increasing to 2,495 tonnes from 2,461 tonnes, Walker said.

"Diminishing rate of primary supply of gold to total above-ground pool is reviving gold's scarcity properties," said Georges Lequime, precious metals analyst at RBC Capital Markets.

"Even $514 is not igniting a short to medium-term supply side reaction," he added.

MINING COSTS

Industry experts said mining costs had risen significantly over the past years because of more costly fuel, power, freight and labour. But miners had failed to work on new big projects as many people were not sure how long the price rally would last.

Analysts said prices were now rising because of huge speculative activities, but demand-supply factors become more important in the long term.

They also said that gold's bull run was continuing despite a rise in the dollar but the metal could gather more strength if the U.S. dollar weakened against major currencies.

Gold prices generally rise with a fall in the dollar as the metal becomes less expensive for holders of other currencies.


LINK: http://www.borsaitaliana.reuters.it/news/newsArticle.aspx?type=fundsNewsUK&storyID=2005-12-09T08...