Gold Prices to Increase

Posted 01 June 2006 @ 05:48 pm EET     Print     Reprint     E-Mail     Comments

Johannesburg (Reuters) - The gold price might hit $1 000 an ounce over the next few years, partly fuelled by hefty investment demand from oil producers with excess cash, the chief executive of Gold Fields said yesterday.

Click to Enlarge The gold price might hit $1 000 an ounce over the next few years, partly ...

Ian Cockerill was clarifying comments made to a strategy presentation on Tuesday when he said prices could move down to about $500 an ounce.

"I see the price continuing from these levels and moving higher In fact could move significantly higher over the next couple of years. I would not be surprised to see it going into four figures in dollar terms."

The spot gold price has surged by as much as 45 percent this year, peaking at $730 an ounce on May 12, but has fallen since then to fix at $653 in London yesterday afternoon.

"A longer-term equilibrium price is closer to $500 if one looks at the fundamental level, but I don't see us being in any danger of getting to that level in the short term. I see that as much longer term. I see the prices going higher from here, not lower," said Cockerill.

If gold eventually touched a base level around $500, that would mean that the equilibrium price was twice the level of lows set in 1999 at about $250.

"No market goes up forever and neither does it go down forever, but when it does ultimately pull back, we don't see it going back below the $500 mark, that's for sure."



As in 1980, when prices touched $850, oil producing nations seeking a home for windfall revenues were a main driver of the gold price, Cockerill said. "Excess petrodollars … were one of the principal drivers … back in the 1980s. Over the last 12 to 18 months, we've seen an increase in petrodollars in the Middle East."

Many analysts see a correlation between a rising oil price, which can fuel inflation, and the price of gold, which is often seen as a hedge against inflation.

The price of gold has risen 160 percent since touching lows in 1999, while Brent crude futures have shot up 265 percent.

"Gold, despite having a fairly healthy run since 2001, is still incredibly cheap on the gold-oil ratio and I think there's still lots of upside potential just taking that into account," said Cockerill.

Long-term investors such as pension funds were also investing in gold, which should give the market healthy support if short-term speculators decided to sell, he added.

He said the recent correction in the gold price was healthy and could help revive jewellery demand if prices stabilised.