Can gold rally further? The precious metal has hit a succession of record highs, culminating in Tuesday's close of US$1,348 per troy ounce.
There are no signs of a trough in sight, judging by the tone of policymakers at the US Federal Reserve, says the US investment bank Morgan Stanley. The bank revised its "bull case" forecast for the commodity next year to $1,512 per ounce yesterday, up more than 10 per cent from its current position.
"Gold, despite trading at record highs, will also continue to find favour from investors in our view on the back of continued quantitative easing and flat currency devaluation," said Hussein Allidina, the head of commodities research at Morgan Stanley. The minutes from the US federal open market committee (FOMC) meeting on September 21 concluded inflation was likely to remain subdued for some time.
Specifically on gold, the FOMC said "it was prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate". The day after the announcement, gold added 1.4 per cent and has been continuously pushing higher since. In the UAE, the Dubai Multi Commodities Centre yesterday said it registered a 20 per cent increase in the value of gold traded through the emirate to $21.17 billion in the first half of the year. The volume remained steady at 608 tonnes.
With the Fedindicating current economic conditions in the US called for exceptionally low levels for the federal funds rate over an extended period, the expectation is that investment demand will further boost high gold prices. Already, data from the World Gold Council show that since 2002 investment demand as a percentage of total demand has more than doubled to 41 per cent last year, from 14 per cent over the same period eight years ago.
While Morgan Stanley's "bull case" was $1,512 per troy ounce for next year, it said its general forecast was for $1,315. halsayegh@thenational.ae
