Analysts expect gold prices to hit $700 an ounce in the next three-six months from $645 now, pushed up by a weak dollar and strong crude prices.
MUMBAI: Analysts expect gold prices to hit $700 an ounce in the next three-six months from $645 now, pushed up by a weak dollar and strong crude prices. The precious metal closed $75 shy of its 10-year high of $725 in the New York spot market on Friday.
“Overall, the outlook is bullish. US data on consumer confidence and durable goods are down, which make the outlook for dollar negative versus the euro, and, by default, bullion positive.
“The dollar is now trading at a 20-month low. We see gold hitting $700 in the next three-six months.” says S I Kannan, commodity analyst of Sharekhan Commodities.
The gold-dollar coefficient averaged -0.87 (spot gold prices versus dollar index) in the six years to 2000, according to World Gold Council data. This strode into positive territory towards the middle of 2005.
It has once again reverted to negative correlation — when the dollar is showing signs of weakness.
A negative correlation coefficient of 1 means that every fall in the dollar would result in a corresponding rise in gold price. The correlation for November stood at -0.93.
Currency analysts say one cannot expect the dollar’s decline to push up gold prices going forward because they foresee a correction in the euro looming.
“No European central bank has yet commented on the ill-effects of an expensive euro.
Measures to deflate the common currency, by way of verbal, actual and technical interventions, will follow. This would see the dollar snapping its slide,” said the head of foreign exchange of a domestic private bank.
But that does not make the scene bad for gold. The outlook for it gets actually brighter when crude prices are factored into the equation. Analysts think crude prices will have a major say in taking gold to $700 levels.
In the 40 years since 1965, gold has traded at an average 15.3 times the price of crude per barrel. But at present, with crude (West Texas Intermediate) at $63.43 per barrel and gold at $645 per ounce, the yellow metal is trading at 10.17 times crude.
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