US$1,000. No longer Gold's 'Magical Barrier'


". . .investors try to get into something that holds value."

The magical US$1,000/oz. price for gold—once considered unachievable—will be increasingly regarded more as the future "bottom out" floor price, according to a senior Westpac economist.

Addressing the Paydirt Australian Gold Conference, Westpac senior international economist, Huw McKay, said the gold price had stepped up year-on-year by about US$100/oz. above predictions, for at least the past five years.

"What we did not know was going to happen was that we were going to have such an enormous collapse in risk appetite that pushed gold beyond the US$1,000 magical barrier," McKay said.

"That has changed gold trends forever and what was once an invisible ceiling, is now more a level where we talk about the US$1,000/oz. price as more of a floor price going forward.

McKay attributed the gold price pressures to two main factors—the change in demand for jewelry—from two thirds of world gold consumption in 2007 to around 40% currently.

"In parallel with this, there has been an expansion in exchange traded products, which have grown from accounting for 7% of total gold consumption in 2007 to 19% now.

"This is a dramatic trend movement move and it is here to stay," McKay said.

"World equity markets and financing has so much uncertainty to it that the allure of gold has never been stronger.

"Demands for gold has shifted to the investor, with very strong fundamental trends coming together to fuel investor appetite for things they can see, touch, hold and put in a warehouse. Gold certainty meets that criteria."

McKay said the turn towards gold had come out of all other asset classes as "investors try to get into something that holds value."

McKay predicts gold will hold around US$1,006/oz. by year-end, moving only slightly higher to around US$1,030 by 2011.

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