Gold Runs Back Toward $1,000 an Ounce


"I think we are getting g into the final part of this particular rally."

Gold is reaping the benefits of both sides of the debate over whether the world's central banks can stimulate the global economy without sparking a surge in inflation.

On Tuesday, gold settled at $983.20 a troy ounce, up 0.5%, and is now just 2% shy of its all-time high of $1,003.20 scored in March 2008.

Among the main drivers is the decline in the U.S. dollar—a result, many analysts say, of a conviction that the global economy is on the path to recovery, thanks to central banks' stimulus efforts. Dollar-denominated commodities lie gold typically rise when the dollar falls, as producers ask for higher prices and consumers outside the U.S. buy more. While the dollar has dropped 9% since mid-April, gold has gained 13%.

Also fueling the rally has been the fear that the Federal Reserve and others won't be able to control inflation once those stimulus efforts kick in.

The rally has caught many in the market off guard. Gold has averaged $910 this year, surpassing analysts' forecast of $881, as calculated by the London Bullion Market Association.

HSBC in May raised its 2009 gold forecast by $50 to $875 an ounce; French investment bank Natixis recently said it expected gold to average $885 this year.

Though many believe the momentum will take gold across the $1,000 mark again, even the most bullish investors are predicting a pause in the metal's ascent.

"I think we are getting g into the final part of this particular rally," said Philip Klapwijk, executive chairman of GFMS Ltd., a London metals-research house. His forecast for gold's average price is $970, one of the highest among 24 analysts LBMA polled.

UBS AG's metal strategist John Reade has a three-month target at $1,000, but warned of a short-term retrenchment. "It's all about dollar weakness," he said.

Another overhang is on the horizon. Congress is soon expected to approve the sales of 403.3 tons of gold by the International Monetary Fund to help the world's poorest countries. The plan was announced in April and tanked the gold market, despite the fund's pledge to sell over years and not to disrupt the market.

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