Gold is expected to rise to a record in the next six months as turmoil in financial markets boosts investment demand, said Paul Walker, chief executive officer of London-based research company GFMS Ltd.
Demand for bullion as a safe haven is growing in markets including India, the world’s largest gold user, amid the financial market crisis, Walker said in an interview in Kyoto, Japan, yesterday. The metal reached a record US$1,032.70 an ounce on March 17 as crude oil gains spurred investors to seek an inflation hedge.
US President George W. Bush and congressional leaders on Sunday reached an agreement on a US$700 billion bank-rescue package to shore up the financial system. The Senate will vote by tomorrow, lawmakers said. Concern that US credit market losses may widen will remain, Walker said.
“There are still lots of unanswered questions,” he said on the sidelines of an industry conference. “One thing is certain, that the US$700 billion plan is a reflection of how profound the crisis is.”
Gold for immediate delivery fell 0.4 percent to US$875.70 an ounce at 2:54pm. Tokyo time. The metal advanced 15 percent in the past two weeks.
“The physical market is extremely strong,” Walker said.
Premiums paid for 1kg gold bars, which normally range between US$1 to US$2 an ounce over the London market, recently surged to US$20 an ounce, he said.
Bullion for immediate delivery surged 11 percent on Sept. 17 as the US government took control of American International Group Inc in a US$85 billion bailout and after Lehman Brothers Holdings Inc filed for bankruptcy.
“Investment demand is driving prices higher,” Walker said. “What we have seen over the past couple of weeks is a flight to quality.”
Tanaka Kikinzoku Kogyo KK, Japan’s largest bullion retailer, said its sales of gold bars surpassed its purchases from local investors last month for the first time in 41 months as money was shifted from tumbling equity markets.
“Retail sales of gold bars continue to rise this month as the bankruptcy of Lehman Brothers and the troubles of other financial institutions strengthened investment demand,” Osamu Ikeda, general manager at the precious metals division of Tokyo-based Tanaka, said in an interview on Sunday.
Gold was decoupling from other commodities that are under pressure from a slowdown in global economic growth and raw material demand, Walker said.
Copper for delivery in three months on the London Metal Exchange fell 4.9 percent in the past two weeks on concern that demand would slow in the US, the second-largest buyer of the metal used in water pipes and electrical wires.
The US$700 billion rescue plan would probably weaken the dollar, providing a boost for gold, said Frank Holmes, chief executive officer of US Global Investors Inc.
“This is one of the most bullish factors for gold,” said Holmes, speaking yesterday at the London Bullion Market Association conference in Kyoto.
“This means you’re going to have debasement of the currency,” he said.
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