Bullion busts out Pundits predict 2003 good for gold

Vancouver After flirting with the crucial US$330 per oz level seven times this year, the price of bullion finally busted out to its highest price in more than three years.

The benchmark Comex futures followed suit by hitting their priciest since June, as geopolitcal concerns and a weak US dollar put gold back in vogue. The February futures contract was up US$7.20 at US$332.70 per oz.

In New york spot gold was trading at US$332.60 per oz, its best level since October 1999, when gold spiked nearly $70 to US$338 per oz.

The move broke gold out of recent ranges and came as the US dollar fell against major currencies and several news reports stating that Iraq may have sold Islamic extremists a chemical weapon.

At the end of 2001, 15 investment banks tabled their 2002 gold price forecasts with values ranging from US$271-to-US$325 per oz. Barclays predicted US$271 an oz, Deutsche Banc, CS First Boston, Merrill Lynch and Salomon Smith Barney all envisioned a US$280 per oz gold price with CIBC and HSBC coming in at the closest value of US$300 and US$325 per oz ,respectively. Their 2003 forecast ranged from US$260-to-US$325 per oz with only CIBC predicting a value of over US$300 per oz.

Weaker global stock markets and a plunging US currency during 2002 prompted most of the analysts to up there gold price targets throughout the course of the year.

In May, Barry Cooper, a gold equities analyst at CIBC in Toronto, raised his gold price forecast for 2003 to US$350 per oz.

Cooper states the the depreciation of the US dollar is the driver for gold. According to the analyst, each 1% gain for the euro dollar against the US dollar will translate into a 1% gain for gold. The hypothesis is that if the eurodollar reaches parity with the US dollar, reflecting a worldwide retreat from American assets, then gold will move to US$345 an oz and gold mining stocks will surge 25% in value.

JP Morgan also upped its price forecast for the yellow metal in 2003 to US$325 per oz from US$285.

Decisively negative on the price of bullion throughout the 1990’s, Mitsui Global precious metals analyst Andy Smith, accurately tabled an average gold price of US$315 per oz for 2002 in fourth quarter of 2001. By Sept. the analyst had predicted a yearly closing gold price of US$340 per oz.

Frank Giustra, former head of mining investment bank Yorkton Securities in Toronto and the current chairman of Canadian merchant banker Endeavour Financial has been even more optimistic on the future price of bullion.

“All the hype about a real recovery that has fueled the recent stock market rally and underpinned an otherwise overvalued dollar is simply not materializing,” says Giustra, “The dollar is and will continue to fall and if gold breaks through US$330 (per oz) this go-round, we are off to the races.”

Weighing in on the price prediction is a stable of ever optimistic gold bugs.

“If the metal can make this type of move upward on just a few more flurries of war rhetoric and a widely expected pause in stocks, it appears that gold will burst through the $325 ceiling with any significant developments on the geopolitical front, and on any setbacks in the dollar or in the stock market,” says the editor of the Gold Newsletter, Brien Lundin. "Such developments are all but certain to come.”