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Gold to reach $1,000 by the end of third quarter 2008 - Credit Suisse

By Clara Denina - Correspondent, clara@thebulliondesk.com (+44 (0)20 7929 6339)

London, 11 August 2008 - Gold may be vulnerable to further declines in the near term, but it will strengthen by the end of the third quarter to around $1,000, as the dollar will fail to maintain its upward momentum and the wider financial environment will worsen, investment bank Credit Suisse said on Monday.

"Overall, we think that gold prices around $850-860 remain buying opportunities," it said in its latest weekly report.

"Given the various problems in the US financial system, (we) think that it is too early to predict an end to the dollar weakness... We therefore stick to our gold price forecast of $900-$1,000 at end of the third quarter of 2008," it added.

Gold prices have risen significantly since the start of the year, as high volatility in other more risky assets due to uncertain financial market conditions encouraged investor appetite for the metal's safe-haven properties. Gold was also made cheaper by the sharp weakening in the dollar up to mid-July.

Prices hit an all-time high of $1,032 an ounce on March 17, but have since corrected below the key $900 level, depressed by a recovery in the dollar and a retreat in crude oil prices from their July all-time highs.

"However, gold prices have actually declined more than what one would assume by looking at the movement of euro/US dollar. That suggests that there might be a psychological element to the recent price decline," Credit Suisse noted.

The US currency has strongly appreciated versus the euro to hit a six-month high of $1.4917 on Monday as the European Central Bank's decision to leave interest rates unchanged weighed on the 15-nation currency, lifting the dollar and consequently undermining gold prices, currently trading around $860.

The current sell-off in gold prices is also due to a decline in crude oil, which fell some 21 percent since hitting a lifetime high of $147.27 a barrel on July 11.

"Many investors hold positions in precious metals as a hedge against inflation. With oil prices coming off, inflationary pressures are fading and investors are reducing their precious metals positions, accordingly," it said.

"Moreover, precious metals are suffering from a general risk reduction in commodities. As prices of oil and base metals come off, market participants also sell gold and other precious metals," it added.

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