New highs in gold to glitter 2005

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Mumbai, Jan 2: Gold is set to march ahead in 2005 with some fresh highs in between.

Considering that the dollar depreciation against the euro will broadly be similar to that in 2004, gold will continue to appreciate proportionately.

Gold, which rose 25% in 2002 and 19% in 2003, rose 5.52% in 2004, making us feel as if we could be on to something. Not since the early 1970s, has gold rallied over such a long time frame. Back when Richard Nixon was US President, the metal gained over a five-year period.

Analysts maintain that gold will at least sustain the momentum it gained in 2004, if not more. The precious metal may average $430 an ounce in 2005, compared with an average of $410 an ounce in 2004, as a weakening dollar increases the metal’s appeal as an alternative investment and mine supply shrinks.

Analysts forecast that a 11% drop in mine production and a 16% decline in total supply this year, will help boost prices.

Gold, which opened on an optimistic note at $415.2 per ounce on January 1, 2004, (London Fix) closed the year at $438. It peaked during the year at a 16-year high of $455.75 recently on Dec 6, after recovering from its year’s low $373.5 on May 14.

Bullion has grown by leaps and bounds in the last few years, recovering from a 10-year low of $252.80 on July 20, 1999. Gold hit the 16-year high in gold futures on the COMEX at $458.70 on Dec 2.

“A declining US dollar, supported by strong fundamentals, is set to make gold attractive, even above $450 an ounce in 2005,” an analyst at a domestic brokerage said.

Against an array of major currencies, the dollar index ended the year with a whimper, slipping last week to fresh nine-year lows.

The market’s view on the euro and dollar going into 2005, is broadly the same as it has been for the past three years: more appreciation is in store for the euro, the dollar and gold.

Analysts forecast that EUR/USD this year, may touch a high of 1.4350/75 and the low price may be at 1.2375/50 or 1.2150/2100. Similarly, gold may touch a high of $490/495 and its low may be at $385/80.

Dollar may recover (after losing initially) in the third or fourth quarter of this year and may continue to be strong in the following years.