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Bloomberg's weekly gold trader survey quotes GoldMoney's and GATA's Turk
Gold May Rise
for 3rd Week
as Dollar Slide
By Choy Leng Yeong
Bloomberg News Service
Monday, December 4, 2006
Gold may rise for a third straight week on speculation a slowing U.S. economy will erode the value of the dollar, increasing the appeal of the precious metal as an alternative investment.
Eighty-three percent of the 30 traders, investors, and analysts surveyed by Bloomberg News from Sydney to Chicago on Nov. 30 and Dec. 1 advised buying gold, which rose 2.4 percent last week to $650.60 an ounce in New York. The percentage predicting a gain was the highest since the survey began in April 2004. Three respondents said to sell. Two were neutral.
Gold rallied 7.6 percent in November, the most since April, as the dollar slumped to a 20-month low against the euro. The U.S. this week probably will report the biggest drop in factory orders since July 2000, renewing speculation the Federal Reserve may trim borrowing costs next year to boost the economy. The prospect of an interest-rate cut has sent the dollar lower.
"People are seeking the safety of tangible assets of all sorts," said James Turk, founder of GoldMoney.com, which stores precious metals for investors. "Gold and silver will continue to be driven higher by this money seeking a safe haven from a depreciating dollar."
GoldMoney.com, based in Jersey, British Channel Islands, has doubled the amount of gold and silver in storage on behalf of its clients to more than $180 million, up from $78 million on Dec. 31, Turk said.
Gold futures on the Comex division of the New York Mercantile Exchange have climbed 25 percent this year and are headed for a sixth straight annual gain. Prices reached a three- month high of $655.50 on Dec. 1, capping a weekly gain that was predicted by a majority of analysts surveyed on Nov. 22 and Nov. 23. The Bloomberg survey has forecast prices accurately in 83 of 136 weeks, or 61 percent of the time.
Silver prices on Comex have jumped 60 percent this year.
The appeal of precious meals has been bolstered by signs of a slowing U.S. economy. Factory orders probably fell 4 percent in October, according to the median forecast of 34 economists in a separate Bloomberg survey. Orders rose 2.1 percent in September. The Commerce Department is scheduled to release the report tomorrow.
Manufacturing unexpectedly shrank last month for the first time in more than three years, Institute for Supply Management data showed last week.
"The economy is weakening substantially," said Paul Yusem, an investor in Lombard, Illinois, who has traded gold futures for six years. "The dollar is in real trouble," said Yusem, who predicted gold may reach $680.
Construction spending in October fell by the most in five years, led by a plunge in home building, the U.S. said last week. Fed Chairman Ben S. Bernanke said residential construction is likely to be a drag on economic growth into next year.
The Fed has maintained its interest rate for overnight loans between banks at 5.25 percent since August, after raising borrowing costs 17 times since June 2004 to curb inflation. Interest-rate futures indicate traders are unanimous in predicting a quarter percentage-point cut by March.
The European Central Bank will raise rates for the sixth time in a year to 3.5 percent on Dec. 7, according to the median estimate of economists in a Bloomberg survey. That would be the sixth increase in a year.
Gold also may get a boost on speculation that higher crude- oil prices will increase the appeal of the metal as a hedge against inflation. Oil may extend a rally to a two-month high on concern cold weather will reduce U.S. fuel inventories, according to a separate Bloomberg survey.
"Cold weather is coming into the U.S. Northeast, which is likely to keep oil prices high and support gold prices," said Mark Pervan, head of research at Daiwa Securities SMBC in Melbourne. The metal might reach $660, he said.
Some investors buy gold to preserve purchasing power in times of accelerating inflation. Gold futures surged to $873 in 1980, when a jump in the cost of oil led to a 13 percent annual rise in consumer prices. Gold has fallen 11 percent from a 26-year high of $732 an ounce in May, while oil dropped 19 percent from $78.40 a barrel, the highest ever, in July.
"Given that the dollar is so weak and crude oil is also firming up, investors most likely would want to see gold test $670 to $675," said Ng Cheng Thye, head of the precious metals market desk at Standard Bank Asia in Singapore.
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