Gold May Advance to Record $1,300 on Double Dip, GFMS's Walker Forecasts
Gold, which gained to a record today, may extend its advance as investors seek a haven for their wealth, including protection from a possible double-dip recession in the global economy, according to GFMS Ltd.
The metal is expected to trade between $1,050 and $1,300 an ounce for the rest of the year, and may climb to as much as $2,000 should the sovereign-debt crisis spread beyond Europe, possibly to the U.S., Chief Executive Officer Paul Walker said in an interview. Gold may also surpass platinum prices, he said.
Gold for immediate delivery has increased 14 percent this year, trading as high as $1,251.85 an ounce today, as Europe’s fiscal crisis has weakened the euro and rattled global financial markets. The metal may surge to $1,700 an ounce as currencies slump, Deutsche Bank AG said on June 3.
“What’s happening in Europe at the moment increases the probability that we will see a double dip,” Walker, who joined the independent, London-based research company in 1995, said yesterday. “The investment case for gold is going to remain robust for the rest of this year.”
Spot gold, on course for a 10th annual gain, was at $1,250.71 an ounce at 5:28 p.m. in Singapore after climbing as much as 0.9 percent to a record. Platinum for immediate delivery increased 0.3 percent to $1,516.60 an ounce. Silver rose 1.3 percent to $18.3925 an ounce.
“If there is a double dip, it will be a reflection of a long-term economic crisis” and that may be good for gold, Walker said from Tokyo. Any increase in investment will likely “push gold towards $1,300,” he said.
The euro has tumbled to a four-year low against the dollar amid investor concern that Europe’s debt crisis may engulf Hungary, spreading beyond Greece. European finance ministers put the finishing touches yesterday to a rescue fund being backed by 440 billion euros ($524 billion) in national guarantees, seeking to halt the turmoil.
Walker didn’t rule out the possibility that the sovereign- debt crisis may expand from Europe to other regions. That may push gold “significantly higher” than $1,300 an ounce, possibly by a further $500 to $700, he said.
“If you look at the United States, compared to Europe as a single entity, in many respects the U.S. looks worse than Europe,” Walker said. “The U.S. government has got a budget that is getting worse every hour, every day.”
The U.S. budget deficit reached a record $1.4 trillion in the fiscal year to Sept. 30 and the Obama administration expects the shortfall to widen to $1.5 trillion this year. The federal debt is projected to reach 90 percent of the U.S. economy by 2020, with interest payments forecast to quadruple to more than $900 billion annually by that year.
Still, the dollar is seen by many investors as a reserve asset, while the euro, introduced 11 years ago, is more vulnerable to selling amid default concerns, walker said. The U.S. currency has risen 17 percent against the euro this year.
A double-dip recession would trigger bigger-than-expected U.S. budget deficits, extend a period of near-zero interest rates and place added pressure on the Federal Reserve to print dollars, Jeffrey Nichols, senior economic advisor at Rosland Capital LLC, wrote in an e-mailed commentary today. “The flip side of this is higher inflation and a higher gold price.”
The price gap between gold and platinum will probably narrow as demand weakens for the white metal, which is used in emission-control devices for cars, GFMS’s Walker said.
“It’s not impossible” for gold to surpass platinum by the end of the year, Walker said. “Platinum prices being above gold is a relatively recent phenomenon.”
Platinum for immediate delivery last traded at less than gold on Oct. 27, 2008, touching a low of $744.25 an ounce that day compared with gold’s intraday high of $747.20, according to Bloomberg data. This year, platinum peaked at $1,756.25.
Investors may lose interest in gold if deflation in other assets accelerates, or if central banks in the U.S. and Europe begin raising interest rates to “rebalance their economies and re-establish their credibility,” he said.
“The risk to the downside for gold is that, even for a brief period, investors decide they don’t want to buy,” Walker said. “That’s when prices could drop by $150 to $200 in a very short time.”