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Gold could top US$1,000 in three years: Morgan Stanley

“You still have population growth and that always works in the favor of corn and soybeans.” — Hussein Allidina, commodity analyst at Morgan Stanley

Gold may climb above US$1,000 an ounce in 2011 as global mine output drops, mining costs rise and demand increases, Morgan Stanley said.

“Mining production actually peaked in 2001 and has since been declining,” the bank’s commodity analyst Hussein Allidina said in an interview in Singapore. “When I look at the demand side, as income growth accelerates, the consumption of gold for jewelry purposes increases.”

Gold more than doubled in the past six years and reached a record US$1,032.70 an ounce on March 17 as the dollar slumped and oil advanced, increasing concern inflation would accelerate. In the past eight months, the precious metal plunged 31 percent as the dollar rallied, oil collapsed and the global credit crisis pushed the world toward a recession.

“The issue moving forward” now is deflation, Allidina said. “If you’ve got concerns about deflation you’ve lost that luster that gold has.”

Gold for immediate delivery traded at US$713.72 an ounce at 2:10pm yesterday.

Agriculture commodities will be the least affected by slowing global growth compared with industrial metals and energy, and corn and soybeans are “oversold by far,” he said.

“When you think about it from a layman’s perspective, if your income is curtailed maybe you forego the purchase of a condominium or a car, you don’t really change your food consumption,” Allidina said. “You still have population growth and that always works in the favor of corn and soybeans.”

Meanwhile, Citigroup Inc cut its forecast for crude oil prices for the second time in six weeks, triggering an average 10 percent reduction in the bank’s share-price targets for oil producers.

Citigroup reduced its forecast for crude oil prices next year to US$65 a barrel from US$90 a barrel and trimmed its long-term price assumption to US$85 a barrel from US$100 a barrel, it said in an investor note yesterday.

“It’s only six weeks since we last lowered our macro forecasts, yet here we are slashing another US$25 a barrel off our near-term estimates,” Citigroup’s analysts said in the note. “We cannot discount further falls in oil prices, which may expose the sector to profit taking,” the analyst said.

The price correction, with oil falling below US$55 a barrel yesterday, the lowest in 21 months, may be positive for integrated oil majors in the longer term as the balance between supply and demand tightens after project deferrals, Citigroup said.
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