Gold steps up a gear as $1000 comes within reach, where next?

By William Adams - Analyst, (+44 (0)20 7929 6339)

London, 03 March 2008 - Gold prices opened strongly this morning but then suffered some nervous profit taking, but the dips have remained well supported. The opening up of the US markets have since seen further buying with prices extending their peak from $985 to $988, just a stones throw from the much talked about $1,000/oz.

For a long time now prices have looked overdue a correction, but the underlying buying pressure has been sufficient to prevent one from taking hold, such is the strength of the bull camp. Indeed even the likelihood that the IMF will be able to sell gold failed to lead to a meaningful correction, which again attests to how bullish sentiment is.

So for the moment with the freight train racing to the $1000/oz barrier it does look as though a correction will be further delayed. It will now be interesting to see whether prices smash through the $1000 level and press on with their advance or whether profit taking will turn prices lower.

The fact that the IMF news did not dampen sentiment may well mean prices have considerably higher to go. Indeed just as clearance of the former highs at $850 did not attract a sell-off we would not be surprised if $1,000 didn’t.

Indeed it may be seen as another objective reached and one less barrier between it and the inflation adjusted price which is nearer the $2,000/oz level. Other yardsticks used to suggest potential targets include the number barrels of oil 1oz of gold would buy and what the average level of the Dow Jones equated to in ounces of gold.

Over the past 30 years 1 oz of Gold has bought on average 17 barrels of oil and in the 1980’s the Dow equated to some 5oz of gold. Basis these measures gives a target of $1750/oz using oil as the measure and $2,435/oz using the Dow as the yardstick.
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