Bank declares new golden age with gold bullion at $1,500
an ounce John Morrissy,
Canwest News Service
Published: Wednesday, January 30, 2008
OTTAWA -- National
Bank Financial has boosted its target on the price of
gold to $1,500 US within the next 12 to 18 months as bullion
reasserts its status as a safe haven in troubled times.
"With bullion having broken through
its previous record nominal price of $878 in January
1980, it's time to revisit our outlook and reiterate
our view that gold is poised for a comeback as an investment
haven," National Bank chief economist Clement Gignac
said in a research note.
Gold has traded at new highs almost
daily in the new year and is up about 11 per cent to
date as fears mount about the effects of a slowing U.S.
economy and a spreading global credit crisis. Gold gained
31 per cent in 2007.
Gold closed down $2.00 at $925.10 an
ounce on the New York Mercantile Exchange.
"Investor confidence has been shaken
by writedowns of more than $100 billion announced by
banks around the world," Gignac said. "Unfortunately,
the U.S. recession expected by many observers must be
expected to swell that number in the months ahead."
As well, the U.S. Federal Reserve's
75-basis point rate cut last week "tends to underline
the seriousness of the situation" in global capital
markets, with analysts predicting a further rate cut
of up to 50 basis points today.
With borrowing rates falling below the
rate of inflation, gold should be well bid, Gignac said,
as negative real interest rates have historically been
a boon to its price.
An employee of Tanaka Kikinzoku Jewellry
in Tokyo displays a gold bar as the price of the precious
commodity eased off historic highs yesterday on odds that
the U.S. Federal Reserve will cut borrowing costs today
by half a percentage point, boosting currencies and eroding
the metal's appeal as an alternative investment. Gold
futures for April delivery fell $2, or 0.2 per cent, to
$925.10 an ounce on the New York Mercantile Exchange.
The price earlier touched $925.20. The metal has gained
11 per cent in January, heading for the biggest monthly
increase since April 2006.
Photograph by : Issei Kato, Reuters
Compounding the investment case is the decline
of the U.S. dollar. "Substantial Fed easing at a time
of large trade deficits and of difficulties for U.S. banks
will reduce foreign appetite for U.S. assets," the note
Moreover, rising inflationary pressures in China will speed
the revaluation of its currency, the yuan, at the same time
that OPEC oil-producing countries begin abandoning their currencies'
peg to the U.S. dollar.
"These current or anticipated developments will confirm
the decline of the greenback and, especially, of its role
as the reference currency of global trade," Gignac said.
While the bank said it supports the U.S. government's $150-billion
stimulus package, it said widening the budgetary deficit at
the same time as drastic monetary easing and currency deflation
will likely encourage inflation.
"We think gold has attractive potential for appreciation
and, especially, as a tool for medium-term portfolio diversification
via gold stocks or gold exchange-traded funds.
"The current price of crude oil, around $90 a barrel,
is about the same in constant dollars as the late-1970s high.
Our new gold target of $1,500 an ounce is still far from the
early-1980s high of $2,200 in constant dollars."