Gold headed for good 2009 as "perfect insurance" sought

The metal will average $910 an ounce in 2009, according to the median forecast of 20 analysts.

Nicholas Larkin, Claudia Carpenter and Pham-Duy Nguyen
07 January 2009 07:31

(Bloomberg) - Gold, the best-performing metal in 2008, may appreciate for an eighth year as investors seek a refuge from declining interest rates at the same time that central banks inject more cash into the banking system.

The metal will average $910 an ounce in 2009, 4.3 percent more than last year, according to the median forecast of 20 analysts, traders and investors surveyed by Bloomberg. Silver and platinum, which averaged at least 12 percent more in 2008, will decline this year, the survey showed.

Gold prices may strengthen after about $29 trillion was wiped off equities last year, the Federal Reserve cut interest rates to as low as zero and governments sought to end the worst financial crisis since World War II. The metal was one of only four commodities to rise when the Reuters/Jefferies CRB Index fell 36 percent, the worst year in a half-century.

"People fear inflation, they fear the credit crunch and they fear currency losses, and gold is the perfect insurance against all of that," said Frederic Panizzutti, a senior vice president at Geneva-based bullion refiner MKS Finance SA, who forecasts gold will average more than $900 in the first half of 2009. Panizzutti was the most accurate forecaster in the London Bullion Market Association's 2008 survey.

Average gold prices have risen for seven consecutive years, the longest winning streak since at least 1949. While the return of 5.8 percent through 2008 was the smallest since 2004 in dollar terms, gold rose 11 percent in euros and 44 percent in British pounds, data on Bloomberg show.

Mali Mines
The plunge in equities spurred some investors to buy precious metals. Gold in the SPDR Gold Trust, the largest exchange-traded fund backed by bullion, reached 780.23 metric tons on Dec. 29, up from 627.88 tons at the start of the year.

The total is equal to almost four months of supply from mines.

Gold producers were among the top performers in the 162- member Bloomberg World Mining Index last year, which fell 61 percent. Royal Gold Inc., the Denver-based owner of rights to gold sales from companies including Barrick Gold Corp., rose 61 percent. Randgold Resources Ltd., the Jersey, Channel Islands- based owner of two gold mines in Mali, advanced 60 percent.

"There is every reason to believe gold's going higher and a lot sooner than most people think," said Randgold Chief Executive Officer Mark Bristow, head of last year's best performing company in the FTSE 100 index, which it joined last month. "Our estimate is that new gold supply is going to be reduced by 15 percent over the next three years."

-www.moneyweb.co.za

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