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Russian central banker says gold holdings may grow slowly
By Pham-Duy Nguyen
Bloomberg News Service
Monday, November 28, 2005
Gold may rise for a fourth straight week, reaching $500 an ounce for
the first time since 1987, as investors purchase bullion as an
alternative to U.S. stocks, a Bloomberg survey shows.
Seventeen of 31 traders, investors and analysts surveyed from Mumbai
to Chicago from Nov. 22 to Nov. 25 advised buying gold, five
recommended selling and nine were neutral. Gold for immediate
delivery rose more than $11 an ounce last week, reaching $497.02 on
Nov. 25, the highest since December 1987.
Gold is headed for a fifth consecutive annual gain and may outperform
the Dow Jones Industrial Average for the second straight year. Gold
futures in New York are up 12 percent, while the Dow average of 30
companies has climbed 1.4 percent and the Standard & Poor's 500 Index
is up 4.6 percent.
"Gold will outperform" because the return on stocks "is too low,"
said Thomas Au, an analyst at R.W. Wentworth in New York.
Gold for immediate delivery rose 2.1 percent last week to $496.08.
Gold futures for December delivery on the Comex division of the New
York Mercantile Exchange rose 1.3 percent in a holiday- shortened
week to $492.30 on Nov. 23. The Comex was closed Nov. 24 and Nov. 25
for the U.S. Thanksgiving holiday.
The increase on the Comex last week was anticipated by the majority
of analysts surveyed Nov. 17 and Nov. 18. Bloomberg's survey has
forecast the direction of prices accurately in 48 of 83 weeks, or 58
percent of the time.
During gold's five-year rally, including 2005, the precious metal has
outperformed the Dow four times and the S&P three times. In 2003, the
last time both indexes outpaced the gain in bullion prices, the Dow
rose 25 percent, the S&P was up 26 percent, and gold jumped almost 20
Since the end of 2002, the return on the S&P with dividends
reinvested was 51 percent, compared with 40 percent for the Dow and
41 percent for gold, which pays no dividend. During that period, the
Philadelphia Stock Exchange Gold and Silver Index of 13 companies,
including Newmont Mining Corp., jumped 57 percent.
Gold also may rise this week on speculation that the U.S. Federal
Reserve may signal an end to a series of interest-rate increases,
traders said. Gold has outperformed returns on U.S. Treasuries since
The Fed has raised rates seven times to 4 percent this year. Minutes
of the Fed's Nov. 1 meeting released Nov. 22 showed some policy
makers are concerned about the ``risks of going too far' in raising
"There's going to be a gravitation toward gold," said John Licata, an
independent analyst in New York, who predicted in 2002 gold would
reach $500 by 2005. He now forecasts gold will reach $700 by the end
Investors are increasingly drawn to gold as insurance against a
slowdown in the U.S. housing market, some analysts said. The U.S.
economy will grow about 2 percent next year after a slowdown in
housing slices 1.5 percentage points from growth, economists at
Goldman, Sachs & Co. said in a note to clients on Nov. 18.
Existing home sales in October probably will slow to a 7.2 million
annual rate, down from 7.28 million in each of the previous two
months and June's record pace of 7.35 million, according to separate
"Investors are increasingly concerned about the possibility of a
housing collapse," said Adrian Day, president of Annapolis, Maryland-
based Adrian Day's Asset Management. "Everywhere one looks, there is
a reason to own a little insurance."
Gold also may rally as investors seek a hedge against rising energy
costs. Global oil demand usually peaks in the fourth quarter of the
year as consumers in the U.S., Japan, and Germany, the world's three
largest economies, buy fuel to heat their homes. Crude-oil prices
have gained 35 percent this year.
Some investors buy gold in times of inflation to preserve purchasing
power. Gold surged to $873 an ounce in 1980 when consumer prices
jumped 12.5 percent.
"All I need to know is that we have fears and concerns about
inflation, and that's going to be enough to feed gold investing,"
said David Meger, a senior analyst at Alaron Trading Corp. in
Gold may also gain as investors seek an alternative to currencies.
Gold in yen has gained 31 percent this year while gold in euros has
gained 30 percent. Gold has rallied even as the dollar has gained 16
percent against the euro. Gold traditionally trades in tandem with
the euro against the dollar.
"Gold is money, and people are exchanging their currencies for it
because all the currencies have problems like inflation and trade
imbalances," said James Turk, founder of Jersey, British Channel
Islands-based GoldMoney.com. "Gold's exchange rate to the dollar
changes because of the dollar's loss in purchasing power, not because
of any investment return."
GoldMoney.com allows people to make payments in gold rather than
A push toward $500 an ounce is sustaining interest in gold, traders
said. Gold has closed above $500 twice in the past 20 years, both
times in December 1987.
"An assault on the psychological $500 level seems inevitable," said
Ron Cameron, a metals analyst at Ord Minnett Ltd. in Sydney.
Gold may face resistance on the way to $500, said some traders who
study price charts. Hedge funds and speculators may sell just shy of
$500, some analysts said.
"Gold will find pretty tough resistance from now to $500," said Peter
Tse, a precious-metals trader at ScotiaMocatta in Hong Kong. "I won't
buy at this level. Anything below $485 should be a buy."
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