Gold will play major role in 2009

Gold will play major role in 2009

Gold will likely trade in a wide range during 2009, possibly from the $600s to above $1,000 an ounce, but political and economic circumstances will determine whether the metal will continue to outpace other commodities and equities.

Gold is often seen as a haven during times of political and financial uncertainty, and that safe-haven status helped the metal maintain its value even as other assets tanked this year.

Next year, the metal's range is likely to be dictated by in part by inflation expectations and currency movements.

In 2008, front month gold in New York gained roughly 5%, while nearby crude and copper lost more than half their value. The Dow Jones Industrial Average lopped off more than 30%. After dropping like a stone on waning auto demand, platinum futures earlier this month settled below the yellow metal for the first time since the 1990s.


Gold may touch $630 on the low side and $980 on the high side in 2009, with an
average price near $810, The metal's trading range will likely stay as wide as this year's $350, with volatility remaining "an integral part of daily, weekly and monthly swings.

Wild cards include severe deflation or "catastrophic geopolitical developments," which could widen that range by $100 on either side, Standard Chartered Bank is more bullish, expecting gold to average $985 in 2009, with a retest of $1,000 by the end of the second quarter.

Gold has outperformed the commodity complex through the financial-sector crisis, and we believe it will continue to perform well through the economic downturn, given constrained supply and continued, if volatile, investment demand, the bank said in a research report.

The metal has risen since November on support from U.S. dollar weakness and, this week, tensions in the Middle East, Standard Chartered said. "In the context of a weakening U.S. dollar we believe fresh investment flows will outweigh withdrawal of previous safe haven flows" as market deleveraging ends and risk appetite increases, Standard Chartered said.

However, Sterling Smith, vice president with FuturesOne, sees equities outperforming gold on balance next year.

The bears are winning right now" in gold, he said, forecasting an average gold price of $720. The metal may try to make an early test to around $955, but a failure to hold that level "could start a serious liquidation that could give us a low down to the $600 area.

Inflation fears cropping up later in 2009 perhaps tied to some sort of currency issue could push gold back into the $820 area toward 2009's end, Inflationary pressures to the upside in the second half of 2009 could have other commodities bottoming and then playing catch up with gold, even though the metal may continue rising.

But during the first half of the year, Gross sees gold continuing to outperform equities and other commodities as the demand side pressures physical resources and gold's safe-haven play continues.