Bloomberg''s weekly gold price forecast survey gets it right half the time


By Choy Leng Yeong
Bloomberg News
Monday, November 8, 2004

Gold may top a 15-year high of $435 an ounce on
speculation the re-election of U.S. President George
W. Bush will erode the dollar's value and make
precious metals more appealing than U.S. stocks
and bonds, a survey showed.

Twenty-nine of 45 traders, investors and analysts
surveyed from Sydney to New York on Nov. 4 and
Nov. 5 advised buying gold, which is sold in dollars.
Ten recommended selling the metal, and six were

Gold has surged 64 percent since Bush took office
in January 2001 as the dollar slumped 28 percent.
Under Bush, the U.S. trade deficit widened in
August to $54 billion, the second-largest on record,
prompting concern more dollars will have to be
converted to other currencies to pay for imports.

"Bush getting re-elected means a bigger deficit, a
weaker dollar, and higher gold prices," said Graham
Birch, who manages about $6.5 billion at Merrill
Lynch & Co. in London. "We'll see gold at $450
before the end of the year."

Gold futures for December delivery rose 1.1 percent
last week to $434.30 on the Comex division of the
New York Mercantile Exchange, the eighth gain in
nine weeks. Prices reached $435 on Nov. 5, the
highest since December 1988, as the dollar fell to
a record against the euro.

The majority of gold investors and analysts correctly
forecast the market's direction 16 times in the 29
weeks since the start of the Bloomberg survey, or
55 percent.

Bush was re-elected by the narrowest popular-vote
margin for an incumbent since Woodrow Wilson in
1916. Aided by expanded Republican control of
Congress, Bush said he would press ahead with
the war on terrorism in his new term and make
permanent his $1.85 trillion in tax cuts.

"The people made it clear what they wanted," Bush
said during his first White House press conference
after winning the Nov. 2 election. "I earned capital
in the campaign -- political capital -- and now I intend
to spend it."

The U.S. needs about $1.8 billion a day in foreign
capital to keep the dollar steady by funding its
current-account deficit, which grew to a record
$166.2 billion in the second quarter as higher
prices for imported oil contributed to a wider trade
gap. The current account is the broadest measure
of trade because it includes investments.

The need to finance a record current-account deficit
may force the U.S. dollar lower, two Federal Reserve
Bank of New York economists said in an Oct. 28
report. The U.S. budget deficit swelled to a record
$412.6 billion in the year ended Sept. 30, as the
war in Iraq and security costs contributed to the
third straight annual shortfall.

"Four more years of Bush is a gift to the gold
markets -- more war, more deficits, more divisions,'"
said Douglas Pollitt, an analyst at brokerage Pollitt
& Co. in Toronto.

The outlook for government spending and divisive
politics is similar to 1968, when Republican Richard
Nixon defeated Democrat Hubert Humphrey for the
presidency, Pollitt said. That year, deficits grew and
prospects dimmed for ending the war in Vietnam,
which grew increasingly unpopular, he said.

"Gold promptly went from $35 to $600 in the ensuing
12 years, amidst a macro environment of stilted
growth and rampant inflation," Pollitt said.

Gold may also rise on concern of political instability
in the Middle East should Palestinian leader Yasser
Arafat, 75, die. Arafat, who was admitted to the Percy
hospital south of Paris on Oct. 29, fell into a
"reversible coma" and was "between life and death,"
Leila Shahid, the Palestinian representative in France,
said on RTL radio on Nov. 5.

Machines are keeping Arafat alive until his family and
officials from France, Israel, and Egypt decide where
he will be buried, two unidentified Bush administration
officials told the Associated Press.

Arafat, who according to Muslim custom must be
buried within 24 hours of death, wants to be interred
in the Al-Aqsa mosque compound, known to Jews
and Christians as the Temple Mount, in Jerusalem's
Old City. Israel's Prime Minister Ariel Sharon told
Israeli public radio Oct. 31 that Arafat won't be laid
to rest in Jerusalem while he's in power.

French Foreign Minister Michel Barnier said on French
television Nov. 7 that Arafat is "alive." Asked if, as
reported several days ago, Arafat is brain dead, Barnier
said, "I wouldn't say that. His condition is very complex,
very serious, and stable."

The prospect of Arafat's death "prompts some fears
about the equilibrium in his region," said Frederic
Panizzuti, senior vice president at MKS Finance, a
Swiss precious metals trading and refining company.
"We would not be surprised if gold reached new highs
over the coming days and weeks."

Some investors buy gold as a hedge against declines
in other investments in times of political unrest. Gold
futures jumped 4.4 percent on Sept. 14, 2001, as
trading resumed following the Sept. 11 terrorist attacks
in New York and Washington.

Some respondents in the survey say gold may fall on
concern the Federal Reserve will raise its benchmark
interest rate, boosting the value of the dollar and
slowing inflation. The Fed will lift its interest-rate target
to 2 percent on Nov. 10, according to all 58 economists
surveyed by Bloomberg.

After rising to a 15-year high of $433 on April 1, gold
fell as the Fed lifted interest rates for the first time in
four years from a four-decade low of 1 percent to 1.75
percent since June 30. A futures contract is an
agreement to buy or sell a commodity at a specified
price and date.

"Gold is due for a breather over the next week," said
Adrian Day, president of Annapolis, Maryland-based
Global Strategic Management Inc., which manages
$85 million. "The Fed may raise rates again."

Hedge-fund managers and other large speculators
reduced their net purchases in Comex gold futures in
the week ended Nov. 2 for the first time in seven
weeks, the U.S. Commodity Futures Trading
Commission said Nov. 5.

Net gold purchases fell to 111,437 contracts, down
13 percent from the previous week of 127,895, which
was the highest since April 13, the Washington-based
commission said. Speculators amassed 144,253
contracts in early April, the most since at least
February 1983.

Trading in gold futures for the year through Nov. 4
reached 12.3 million contracts, surpassing the total for
all of 2003, which was 12.2 million, Nymex said in a
statement on Nov. 5.

"Gold futures have proven to be a vital investment and
trading tool as more and more individuals and firms
are seeking alternative instruments," Nymex President
James Newsome said in the statement. "This volume
record is indicative of the expanding interest both
investors and commercial entities are showing in
today's commodity markets."


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