Gold Prices May Reach 17-Year High on Jewelry Demand (Update1)
*Note: I still believe there's a chance $GOLD retests the $400 area... but at the same time I'm crazy bullish on $GOLD for the long-term
Gold Prices May Reach 17-Year High on Jewelry Demand
Sept. 12 (Bloomberg) -- Gold may rise to a 17-year high on increased demand from jewelry makers, the biggest users of the precious metal, a Bloomberg survey showed.
Twenty-four of 35 traders, investors and analysts surveyed Sept. 8 and Sept. 9 urged investors to buy gold, which rose 1 percent last week to $453 an ounce in New York and up 13 percent from a year ago. A rally above $458.70 would be the highest price since June 1988. Six respondents said gold will fall, and five forecast little change.
Jewelers bought a record $38 billion of gold in the 12 months ended in June as the global economy grew, the producer- funded World Gold council said Sept. 7. Jim DeNatale, part owner of a New York jewelry shop, said he increased inventory by 30 percent this year to meet demand and adjusted prices in his catalogue to reflect costs that are up $25 an ounce from 2004.
``Jewelers will pay these prices and pass them on to their customers,' said Thomas Au, an analyst at financial consulting company R.W. Wentworth in New York.
Gold futures for December delivery rose $4.50 on the Comex division of the New York Mercantile Exchange last week, a gain anticipated by the majority of analysts surveyed Sept. 1 and Sept. 2. Bloomberg's survey has correctly forecast gold's direction in 40 of 72 weeks, or 56 percent of the time. A futures contract is an obligation to buy or sell a commodity at a set price by a specific date.
Gold futures for December delivery rose as much as A$2.80, or 0.6 percent, to $455.80 an ounce in after-hours electronic trading, and traded at $454.10 at 3:16 p.m. Sydney time.
Rising Demand
Jewelers accounted for 68 percent of world gold demand in 2004, said London-based GFMS Ltd. India, the largest market for gold, increased demand for gold jewelry by 42 percent in the second quarter, GFMS said. Taiwan's buying rose 27 percent, and Saudi Arabia jumped 18 percent. Gold is sold mostly in dollars.
Analysts expect gold demand to grow in the second half of the year as jewelers stock up this month and next for the wedding season in India and the year-end holidays in Europe and the Americas. Gold has risen from Sept. 1 to Oct. 31 every year since 2000, including 4.5 percent last year.
``At this point, there are no signs that prices are a deterrent,' said George Milling-Stanley, New York-based manager of investment and market intelligence at the World Gold Council. ``Most people in the jewelry business believe prices will continue to go up.'
The record demand for the year through June is $3 billion higher than the previous record of $35 billion for the 12 months ending in June 1997, the World Council said.
`Very Hot'
``Gold is definitely becoming hot again,' said Alexandra Nazarian, a gemologist with Denatale Jewelers Inc., the New York shop that Jim DeNatale owns with his three brothers. ``People are asking for yellow gold. Gold-toned bangles are very hot.'
Customers haven't been bothered by the price increase, DeNatale said. The most popular items are a $500 charm bracelet and a $1,000 14-karat necklace that wraps around the neck three times, he said.
Gold also may benefit from concern that inflation will accelerate as damage from Hurricane Katrina helps keep energy prices high, prompting some investors to buy bullion as a hedge, analysts said.
Gold is up 2.5 percent since Katrina swept through the Gulf of Mexico on Aug. 29, causing an estimated $200 billion in damage. Crude oil surged to a record $70.85 a barrel on Aug. 30. In a separate survey, analysts and strategists expect oil prices to rise next week on speculation output of crude and refined products, curtailed by the hurricane, may take months to recover. Oil prices, which fell 5.2 percent this week, have more than doubled in the past two years.
Inflation Concern
``Rising energy prices raise concern over inflation, which will drive gold prices higher as investors buy the metal as an anti-inflationary hedge,' said James Moore, a Kettering, U.K.- based precious metals analyst at TheBullionDesk.com.
Hurricane Katrina also forced economists to revise their forecast for the U.S. economy and inflation.
The world's largest economy is expected to grow at a 3.6 percent annual rate from July through September instead of the 4.1 percent forecasters predicted a month ago, based on the median estimate in the latest monthly survey of 57 economists. The consumer price index may rise at a 3.5 percent rate this quarter from a year earlier, up from last month's forecast of 3 percent.
Some investors buy gold in times of inflation, which erodes the value of fixed-income assets, such as bonds. Gold futures surged to $873 an ounce in 1980, when consumer prices rose more than 12 percent from the previous year.
Hedge-fund managers and other large speculators increased their net-long position in New York gold futures by 5 percent in the week ended Sept. 6, the U.S. Commodity Futures Trading Commission said Sept. 9. Speculative long positions, or bets prices will rise, outnumbered short positions by 115,252 contracts, up from 109,833 a week earlier.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net
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