Gold likely to hit new highs on dlr fear

DAVOS, Switzerland - The gold price is likely to hit new record highs in dollar terms, as there is serious concern about the U.S. currency, the chairman of Barrick Gold Corp. said on Thursday.

By (Reuters)

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Published: Thu 29 Jan 2009, 8:56 PM

Last updated: Thu 2 Apr 2015, 4:35 AM

He said there was even a possibility, although not a likelihood, that central banks including China’s might start to switch from dollar holdings to gold, which could cause the metal’s price to treble.

“Gold is at record levels in every currency except dollars. Even within dollar terms it is within a few percentage points of an all-time high at a time when all the other major commodities are falling,” Peter Munk told Reuters at the World Economic Forum meeting in Davos.

“Whether it’s the currency effect or a reaction to a feeling of uncertainty, gold in my opinion is more likely to go up than down,” the chairman and founder of the world’s largest gold mining company said.

Spot gold was at $878.50/880.50 at 1313 GMT. Its current record high is $1,030.80 an ounce, achieved in March last year.

Munk stressed that he was merely weighing the odds.

“It would be stupid to assume commodities prices can only go one way,” he said, adding that physical demand for gold jewellery was not high during the economic downturn.

Gold has been once of the best-performing assets of recent months, rising in value by nearly 17 percent since late October even as the price of other commodities such as oil and copper has dropped sharply.

Investors have bought heavily into physical bullion in the form of coins and bars and physically backed assets such as exchange-traded funds as a safe store of value at a time of increased volatility in other asset prices.

Munk said downward pressure on the dollar, partly due to massive U.S. spending to stimulate the economy, would increase gold’s attractions as an investment even further.

Gold usually moves in the opposite direction to the dollar, as it is often bought as a hedge against weakness in the U.S. currency.

“My personal feeling is that with the rescue packages calling for trillions, not billions... the value of the (U.S.) currency has to go down,” said Munk.

Dumb to hedge

He added that his company did not now hedge its output—meaning use derivatives to insure against a fall in price—and relied on the price climbing. In the past its successful hedging allowed it to make key acquisitions.

“It would be dumb to hedge,” Munk said.

He said there was a possibility central banks, including that of major dollar asset holder China, might start buying gold.

“If they decide to diversify, we assume into gold, then we start to talk about a trebling or quadrupling of the gold price. It could be followed by Russia or Kuwait.

“I don’t think it’s likely, but it’s more likely. I would not have said it two years ago ...I’m not a gold bug ...but it’s more likely than it was two years ago.”

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