Weak U.S. dollar pushes gold to near $500 mark

Hold on to your hats, gold- watchers. The price of the precious metal may be about to make a run at $500(US) per ounce.

Trading in the mid-$470 range (almost $650 Cdn) at presstime, gold has seen an almost steady rise in its price since the end of February, when it was straddling the $400 mark.

Bill Bradburn, a trader with Hector M. Chisholm & Co, Toronto, said he sees the price of gold hitting $500, but not much more. He cautions, however, that if the price is to raise to that level, it will have to do so within the next 30-to-60 days.

Mr Bradburn’s mixed optimism stems in large part from the relatively poor performance of the U.S. dollar, which seems to have been at the mercy lately of possible higher interest rates, a weaker American economy and accelerating inflation. “We’ll probably see a bottoming of the dollar in the next 30-to-60 days,” he said.

A Toronto broker who wished not to be identified said he thinks gold has reached its short-term top. “It’s not a factor of inflation but a factor of the American dollar,” he said, predicting a low of $425 for the shiny metal in less than three months.

Arguing all the ingredients were available recently for gold to top the $500 mark, he said “it will take a real pounding of the American dollar to get gold to $500-plus.”

Gold stocks on North American exchanges have seen their prices rise in anticipation of the price of gold, and he said the potential now exists for profit-taking.

In the United States, a stronger- than-anticipated growth in the economy, surging commodity prices and the weakened dollar have led the Federal Reserve Board to tighten its monetary stance. The world’s major industrialized nations are expected to address the dollar’s troubles at their Group of Seven meeting in June.

Well publicized reasons — the political difficulties in South Africa and the Brazilian debt problem — for pushing the price of gold upwards remain with us. The recent Iraqi missile attack on a U.S. warship in the Persian Gulf is thought to have helped further drive up the price.

Toronto gold observer Martin Murenbeeld, in his weekly release, spells out two factors which could have a negative influence on the price of gold, a brief rebound in the U.S. dollar and a brief drop in commodity (oil) prices. He doesn’t see these two factors having immediate impact, however.

“There is a certain momentum in inflation psychology just now which will need a period of time to be undermined before these other factors can gain the upper hand,” Mr Murenbeeld wrote. He also suggests gold seems to be ready to make a push for $500.

Accompanying the rise in the price of gold has been an increase in the prices of other precious and base metals. All currently running higher than their average 1986 prices are silver, copper, lead, zinc, aluminum and nickel.

Silver, which averaged $5.45 per ounce in 1986, was quoted at $6.26 at the first of April. A run-up saw the price of the white metal increase to $11.25, before pulling back to the $7.50-$8 range. At presstime, the price of silver was just under $9.