Everybody seems to be hoping for a drop in gold for a better buy point

Section:

Trade Confident Of Gold Hitting $450 Soon

By Nicholas Sinclair
Dow Jones Newswires
Thursday, November 18, 2004

http://www.futuresource.com/news/story.jsp?i=i4511580452066230336

SYDNEY -- After breaking above US$445 a troy
ounce Wednesday for the first time since July 1988,
gold is poised for further gains in the near- to medium-
term, Asian traders said Thursday.

Notwithstanding lingering caution in some circles,
those contacted by Dow Jones Newswires say it is
principally a question of when, not if, a 16 1/2-year
high is established above US$450/oz.

"Very, very soon," answered one senior Sydney
trader with a major global bank, when asked when
gold might breach the psychologically significant mark.

At 0605 GMT, spot gold was quoted at US$445.40/oz,
up 75 cents since Wednesday's Comex close. Trading
has been light thus far Thursday in Asia, with many
players currently on the sidelines, waiting for the next
move, traders said.

But given the prevailing trend in the currency market,
the rally looks set to go on.

"The weakness of the U.S. dollar looks like it will
continue for a little while," said Ellison Chu, senior
manager with Standard Bank London in Hong Kong,
referring to the main catalyst behind gold's ascent.

"With the market already talking about the dollar
falling to US$1.32 against the euro and Y103.40 to
the yen, gold should easily breach US$450/oz,"
Rothschild Australia's Martin Mayne said in a note
to clients.

The pace at which gold has soared since the
beginning of September, with only small hiccups in
mid-October and early November, has left many
traders and analysts expecting, or outright hoping
for, a modest pullback to allow the yellow metal to
consolidate its gains.

"The obvious risk is for a correction," Rothschild's
Mayne said. "The market is already massively long
on gold, and with year-end position squaring a
distinct possibility, it would not take much for a
modest correction in the price to trigger stop loss
selling."

But like others, he agreed that a major retreat is
unlikely in the near term.

"However, any correction in the price will be seen
as a buying opportunity as dealers expect the dollar
to keep sliding on perceptions that the second
Bush administration will tolerate a weakening
currency to make U.S. exports more competitive,
even as they profess to maintain a strong-dollar
policy," Mayne explained.

Standard Bank London's Chu said the U.S. dollar's
trajectory, particularly against the euro, would dictate
the scope of any correction. But he too believes a
sharp decline is unlikely.

"If gold really wants to go up a bit further, I think it
has to retreat back to the US$437-US$438/oz level
first," he said.

This is likely to occur if and when foreign exchange
speculators take profits on the U.S. dollar's recent
woes, which Chu said could bring the euro back to
US$1.28 without doing significant harm to gold.

The inherent nature of gold's rally to 16-
year highs, driven, as it has been, primarily by U.S.
dollar weakness, means that not all players in the
market are benefitting equally.

"Do not mistake stronger commodity prices as solely
a vote of confidence in the fundamental outlook; rather,
it's a commensurate U.S. dollar price lift that is driving
metal prices higher," ABN AMRO's commodities team
said Thursday.

"We have often warned about the lack of price
progression in commodity prices when expressed in
euros, rand, or Australian and Canadian dollars," it
said.

Indeed, just this week, while the euro hit a record high
and the yen approached a 4 1/2-year top against the
greenback, the currencies of leading gold-producing
nations also jumped.

South Africa, the world's largest gold producer, has
seen the rand approach five-year highs, while Australia,
the third-biggest source of output, has watched its dollar
reach a nine-month high.

In Canada, the fourth-largest gold producer, the dollar
has climbed to its best levels in 12 years against its U.S.
counterpart.

Naturally this means gold buyers in the aforementioned
countries aren't realizing nearly the same return on their
investment as U.S. dollar players.

But the implications are also significant for gold miners
in South Africa, Australia, Canada, and other countries.
Depending on hedging strategies, many of these
companies invariably have large chunks of their cost
bases exposed to their respective domestic currencies.

"Much more of this and we may well see earnings
downgrades again as a result of stronger currency
assumptions," ABN AMRO warned.

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