Gold price escalation to continue in ’07 (ZT)

Wednesday, November 08, 2006Standard & Poor’s credit analysts have forecast that gold prices will continue to escalate through 2006 and 2007, while base metals demand will remain strong for at least several quarters. Nevertheless, the analysts also suggested that while fundamentals remain sound for most metals, “some significant risks exist” including an unanticipated drop in industrial production in China, large speculative positions in LME-traded metals, and mining operating cost inflation. “The factors that fueled the escalation in gold prices will likely persist through 2006 and 2007, thereby underpinning prices,” according to S&P. “Production is declining as output from mature mines in Australia, North America, and South Africa drops. In addition, there are too few projects that could reverse the expected decline in production because permitting and building new mines usually takes several years.” While S&P’s 12-month base-case price for gold is $620 per ounce, the analysts added that “factoring in fund investment, gold prices will stay true to form by remaining extremely volatile and unpredictable.” Nevertheless, they predicted that factors such as political tensions, increasing Asian jewelry demand, producers unwinding their hedge books, and anxiety over terrorists “all continue to support further increases in the price of gold.