Commodities Corner
Calling Gold's Tune
by Matt Whittaker
WlTH THE FEDERAL RESERVE'S INTEREST-RATE CUT OUT OF THE WAY, GOLD futures are likely to continue taking guidance from their closest bedfellows of late: the euro and crude oil
The most-active December gold contract on Nymex's Comex surpassed $800 an ounce-a psychological benchmark set for the first time in 1980-on the back of stronger crude oil, a falling U.S. dollar, and inflation worries. While gold probably has more upside in the months to come, the yellow metal's star power might be reined in over the short term.
Carlos Sanchez, a precious-metals analyst with commodities consultancy CPM Group, says that technical charts haven't provided much guidance for gold trade between$730 and $800 because the metal has so rarely been between those levels. So they've turned to oil and the euro for clues.
On Friday, the most-active December contract rallied as high as $810.70 an ounce, taking out the May 2006 peak of $808. The contract settled at $808.50, up $21 on the week. Now, the next target is $873, the highest level for a nearby futures contract, set in January 1980.
Since mid-August, December gold ha srisen more than 24%,while December crude is up more than 35% and the dollar has hit all-time lows against the euro.
As gold approaches last year's high, guidance from the energy and currency markets comes in handy. "Those things are likely to give gold some uplift in the very near term," says Patrick Fearon, precious-metals analyst with AG. Edwards. But Fearon views gold as overextended, and sees a correction looming.
Of the two influences, the currency action dominates. Dollar-denominated gold often moves inversely to the dollar, because the metal acts as an alternative currency, says Tom Winmill, portfolio manager of the Midas Fund, a natural-resources-companies mutual fund. He sees gold as high as $830 through the end of the year, or as low as $750.
"Gold is very overbought, short term, and the dollar's very oversold, and there is the potential for both to correct their recent moves," says Peter Grandich, publisher of the Grandich Letter. But into 2008, the same underlying bullish factors that led gold from $400 to $800 probably will lead the metal into four-figure territory, Grandich says. "There is a reasonable chance that gold can hit $1,000 in 2008."
Those factors include strong investment demand from Middle Eastern oil money, a rising Asian middle class, developing nations considering converting reserves into gold and interest in gold-backed exchange-traded funds, analysts say. This comes as production is declining, mining companies are having -difficulty replenishing reserves, and sales from European banks are slowing.
''You have a perfect storm that favors gold for as far as the eye can see," says Michael Metz, chief investment strategist with Oppenheimer & Co. "It's not too late to buy it."
Nymex crude-oil futures set an all-time high of $96.24 a barrel last week, underpinned by forecasts of a big fourth-quarter supply deficit going into the winter. Crude settled at $95.93, up $4.07 on the week.
MATT WHITTAKER reports on metals for Dow Jones Newswires in Jersey City, N.J. |
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