Why Analysts Think Gold Will Rise Higher

Source:

Canaccord Adams expects gold will test and break above the May 2006 high of US$722.

Central banks appear to be slowing the pace at which they sell gold reserves, which should leave the metal freer to respond to current market developments. At the same time, gold miners are spending billions to unwind the gold hedges they took out at much lower prices than the US$700 per pound level we’re seeing today.

But what explains the apparent disconnect between the spot price of gold and gold equities?

Bullion saw a previous cycle high of US$722 per ounce (London fix) in May 2006 and is quickly approaching this mark, Canaccord Adams analysts said in a recent note to clients. Meanwhile, the TSX Gold Index is still nearly 10% away from the 331 point level achieved at the same time.

Canaccord points to short-term liquidity concerns in the ABCP and related markets, which may be making investors less willing to take on risk.

Canaccord expects gold will test and break above the May 2006 high.

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