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Gold May Climb as Rising Oil Costs
Spur Inflation, Bloomberg Survey Says
By Choy Leng Yeong
Bloomberg News Service
Monday, May 30, 2005
Gold may climb for a second week on speculation rising energy costs
will fuel inflation, boosting the appeal of the metal as an
Seventeen of 37 traders, investors, and analysts surveyed May 26 and
May 27 advised buying gold, which rose 0.5 percent last week to
$422.40 an ounce on the Comex division of the New York Mercantile
Exchange. Eleven recommended selling the metal, and nine were
Crude oil surged 6.6 percent last week to above $51 a barrel,
helping gold post its first weekly gain in four. As gasoline prices
approached the highest ever, a record 37.2 million Americans still
plan to travel 50 miles (80 kilometers) or more from home this
weekend for the Memorial Day holiday, according to AAA, the biggest
U.S. travel organization.
"The fact that oil prices have started to rise will put inflationary
pressure on the economy," which "should be pretty good for gold,"
said Stephen Leeb, president of New York-based Leeb Capital
Management, which oversees $115 million with about 4 percent in gold
Gold for August delivery gained $2.20 an ounce last week, surprising
the majority of analysts who expected a decline, according to a
survey on May 19 and May 20. Gold is up 6.6 percent from a year ago.
Bloomberg's survey has forecast the direction of prices accurately
in 32 of 57 weeks, or 56 percent of the time. A futures contract is
an obligation to sell or buy a commodity at a set price by a
Crude-oil prices may extend gains this week as U.S. refiners
increase processing to boost gasoline stockpiles for the peak-
demand summer season, a separate Bloomberg survey showed. Oil has
gained 31 percent in the past year and reached a record $58.28 a
barrel on April 4.
"I expect energy prices to move higher, especially as we head into
the busiest driving season of the year," said John Licata, an
independent analyst in New York. Investors will "look to enter
undervalued markets like gold and silver," he said.
Some investors buy gold in times of inflation, which erodes the
value of fixed-income assets, such as bonds. Gold reached a 16-year
high of $458.70 an ounce on Dec. 2 as U.S. consumer prices rose 3.3
percent in 2004, the most in four years.
"Gold is cheap and undervalued," said James Turk, founder of Channel
Islands-based Goldmoney.com, which stores about $48 million of gold
for owners in 102 countries. "The expectations that oil is going
lower are simply unrealistic."
Turk and Leeb Capital Management's Leeb said gold will rally to $500
an ounce this year.
Gold sold in dollars fell to a three-month low of $416.20 an ounce
on May 24 as the euro slumped toward a seven-month low against the
dollar. The euro declined partly on concern many French voters
oppose the European Union constitution, according to polls before
After the French vote, a referendum will be held in the Netherlands
on June 1, and votes are scheduled in the U.K., the Czech Republic,
Denmark, Ireland, Luxembourg, Portugal and Poland.
"The possibility of the referendum on the European constitution
resulting in a 'no' vote and possibly throwing the euro-region into
major disagreement is already being factored" in, Licata, the
independent analyst, said. "If any resolution is made on any front,
the dollar will give back some recent gains, and that is bullish for
Gold gained on May 5 after Standard & Poor's cut its credit ratings
on General Motors Corp. and Ford Motor Co. to below investment
grade. The ratings cuts came after GM reported its worst quarterly
loss in 13 years.
"The continued unraveling of corporate debt ratings such as Ford and
GM, as well as major pension concerns and failures, doesn't support
the strong dollar that we are currently seeing," Licata said. "It
should cause investors to consider buying gold more than ever."
Some of the biggest U.S. carriers such as US Airways Group Inc. and
United Airlines have moved to cancel pensions as the industry posted
combined losses of $33 billion in the past four years.
Higher oil prices have contributed to a widening U.S. trade gap. A
broader deficit raises concerns that more dollars will have to be
converted to other currencies to pay for imports.
Gold reached its December high partly because the dollar tumbled to
the lowest ever against the euro amid a record $617.7 billion U.S.
trade deficit last year.
"With the structural imbalances in the U.S., the dollar is far from
an attractive alternative," said Gregory Orrell, who manages $100
million at Orrell Capital Management Inc. in Livermore, California.
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