Merrill Lynch sees gold at $725

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July 13: The price of gold may rise to $725 an ounce by 2010 as surging economic growth turns China into the world’s biggest jewellery consumer, said Graham Birch, who manages a Merrill Lynch & Co fund that has grown fivefold since 2000.

Rising demand in China and a weakening dollar pushed the price of gold in London to a 16-year high of $456.89 an ounce in December. Gold last reached $725 an ounce in January 1980. The metal traded at $423.85 as of 5 pm in London on Wednesday.

“The Chinese are getting richer, and have very high savings rates,” said Birch, who helps manage $8.5 billion in mining assets for Merrill Lynch in London, including the Gold & General Fund. “As they earn more money, they will spend more on things like jewellry.”

At current growth rates, Chinese consumers would have to buy at least another 293 tonne of gold a year to overtake demand in India, the biggest market on Wednesday. That tonnage is worth about $4 billion and equal to more than six weeks of global mine production.

The Chinese economy expanded 9.5% to about $1.65 trillion last year. The country’s 1.3 billion consumers are already the world’s biggest users of commodities such as steel, cement, copper, tin and iron ore.

Chinese retail sales of gold jewelry rose more than 11% to 224.1 tonne in 2004, according to London-based research group GFMS Ltd. Sales may increase to as much as 600 tonne within five years, Birch said. Indian consumers bought 517.5 tonne of jewellry last year.

“The question is, where is all that gold going to come from?” said Birch, 45, in an interview on July 1. Mine production fell 4.4% last year, according to GFMS.

Citigroup Inc said on May 19 the gold price this year will surpass the 16-year high reached in December. Fat Prophets, a privately owned financial-advisory company in Sydney, said on Wednesday gold may rise to $850 an ounce in as little as three years. By contrast, Barclays Capital forecast on June 16 the metal will drop to $400 or lower by year-end, the first annual decline since 2000.