HSBC metals analyst Jim Steel expects the gold price to stay strong while the U.S. dollar remains weak and credit problems hinder businesses, although a return to normality in the second half could weaken the gold price.
Author: Dorothy Kosich
Posted: Monday , 03 Mar 2008

HSBC metals analyst Jim Steel suggested Sunday that the gold market will remain strong throughout the duration of a weak U.S. dollar, credit problems and easy monetary policies."
Nevertheless, in a speech to analysts, mining professionals and other attendees at the Prospectors and Developers Convention in Toronto, Steel warned that a turn to financial normalcy in the second half of this year "could weaken gold."
Steele asserted that although the U.S. dollar is remains under severe pressure, the possibility of a new Plaza Accord could help the dollar. Nonetheless, Steele still believes gold remains "on an upward trend within stabbing distance of $1,000/oz."
The current gold rally is supported by commodity price strength and monetary inflation-and even, rising good prices that boost emerging market gold demand, he suggested. Gold prices are also being reinforced by a sub prime mortgage crisis that has spread into a wider credit crisis, which is causing investment funds to engage in "financial safe-haven buying."
Interestingly, although fund managers cut their dollar short, Steel's research revealed that they have kept their long-term gold positions.
As the gold ETF has proven to be the most attractive gold investment avenue for fund managers, Steel noted that gold ETFs are now being held by "strong hands," which includes pension fund managers. However, he expressed some concern that as gold prices are rocketing, the precious metal could move to a physical surplus.
Steele also suggested that the South African rand forecasts could impact gold production costs of South African gold producers already struggling with the production impacts of the current power crisis.
Presenter Alan Williamson of Galena Asset Management asserted the U.S. dollar has the strongest influence on gold prices and is the weakest on platinum prices. He forecast that precious metals will continue to outperform base metals throughout this year.