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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 said.

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."

Times Colonist (Victoria) 2008

Gold Bullion - Bank declares new golden age with Gold Bullion at $1,500 an ounce

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