Investment driven period for gold

Metal analysts at Citigroup, the international financial conglomerate, are forecasting that gold could rise beyond its historic ceiling of $850 oz, to $1,000 oz, or even higher.

So far in 2007, the gold price has run $62 oz above the 2006 average of $605 oz and Citigroup analysts, John H Hill and Graham Wark, are of the opinion that policies put in place to deal with the global shortage of credit could take the form of a “re-flationary rescue”, which in its turn could generate in a new cycle of credit creation and competitive currency devaluations.

The latter would almost certainly impact positively on the gold price.

Citigroup has upped its 2009/2010 forecasts for gold to $800/$820 oz, and its long-term valuation has been increased to $700 oz.

However, the group’s analysts are advising that “within this, a test of $850-$1000 oz is likely.”

Citigroup’s research indicates that gold is entering a period when the price will be investment-driven rather than dictated by physical/fabrication demand.

This is partly because of the re-establishment of the safe-haven quality of gold during the recent credit squeeze.

In addition, gold stocks are beginning to rise in value in response to renewed investment interest.