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Gold could flirt with $2,000 by year-end

Muzaffar Rizvi
Filed on October 9, 2012

Gold will continue to shine in the coming days as investors opt for the yellow metal as their top commodity choice in a turbulent fourth quarter.

The precious metal, which hit an 11-month high at just below $1,800 an ounce on Friday, is expected to flirt with the $2,000 mark by year-end. Prices may set a new record next year as investors fear a possible “fiscal cliff” in the United States that will shrink the world’s largest economy and spur more money printing to offset the impact of a potential $600 billion spending cuts and tax hikes in 2013.

“Yes, the gold prices are likely to hit $2,000 this year. It can even go higher,” Pure Gold Group chairman Firoz G. Merchant told Khaleej Times.

To a question where gold prices will stable in international markets, he said it is difficult to predict amid considering the volatility on economic front.

“Considering the global crisis, it is quite difficult. International market is volatile itself,” he said.

Rajeev Menon, brand manager of Liali Jewellery, said the precious metal will remain stable in the coming days, but it will be difficult to reach the $2,000 mark in 2012. “Although we see an increasing trend in gold prices over the last years, I don’t think it will reach the $2,000 mark in 2012. It will be in the range of $1,700 to $1,800 per ounce,” he said.

“In 2012 and 2013, gold price will be stable.”

Spot gold, which has risen for 11 straight years, gained 12 per cent since mid-August to hit the highest price since November 9, 2011 at $1,795.69 an ounce on Friday as investors add to holdings and central banks expand reserves. It rose about 11 per cent in the third quarter of 2012, but it is still about 7.5 per cent lower than the recent peak level of $1,923.70 an ounce, which it hit on September 6, 2011.

According to some analysts, monetary stimulus particularly benefits gold and it recently peaked in Indian rupee, euro, South African rand and Swiss franc terms. They said the stage is now set for gold prices to gain some traction and challenge its previous all-time highs.

“The initial resistance at $1,790 is now consigned to history books, but the $1,800 level seems to grow in importance. This level, however, is mostly psychological, and the regaining of 1,800 would lead to an even stronger bullish mode for gold,” Gerhard Schubert, head of precious metals at Emirates NBD, said in a weekly bulletin.

“There are many analysts out there who are now amplifying the call that gold still reach the $2,000 within 2012, something which we have advocated without fail all this year,” he added.

Wall Street analysts are also bullish on gold amid the tepid economic recovery, with one brokerage predicting the precious metal could rally to as high as $3,000 a troy ounce by early 2014.

“Gold prices recently broke above the year-long downtrend line, completing the correction within the longer-term uptrend that targets resistance of $1,800 to $1,925,” Bank of America Merrill Lynch analyst Stephen Suttmeier said in a technical analysis.

“The secular bull market for gold points to a stronger rally of $2,050 to $2,300, and up to $3,000 longer term.” In a Deutsche Bank report published recently, analysts Daniel Brebner and Xiao Fu forecast gold prices will exceed $2,000 in the first half of 2013.

Impact on jewellery sales

Jewellers and retailers have mixed views over higher gold prices’ impact on jewellery sales. However, they have a consensus that while demand for gold jewellery persists, the bullish market clips the buying capacity of customers.

“We do not really feel any impact on jewellery sales due to the rates. Consumers have accepted the price and they look forward to get the future benefits,” Merchant said.

Jewellers, retailers and traders at just concluded MidEast Watch and Jewellery Show in Sharjah also expressed the same views as they pin hopes on seasonal festival activities including Eid Al Adha, Diwali, Christmas, New Year and the Chinese New Year to boost sales.

“Higher gold prices have curtailed the buying capacity of customers, but the demand for jewellery and luxury items persists in the market,” the exhibitors told Khaleej Times.

“Because of the higher gold rates, gold jewellery sales is not growing. But customers see the rising prices of gold as a good investment so they purchase gold coins and bars,” Menon concluded.

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