Gold likely to hit $1,600 in 2011 - Credit Suisse

Many of the drivers that have been pushing prices higher throughout 2010 are expected to persist and demand from China will be a major factor

Author: Geoff Candy

Posted:  Wednesday , 08 Dec 2010

GRONINGEN -

Many of the factors that have pushed gold higher over the course of 2010 are expected to continue into 2011, which should see gold prices trading as high as $1,600 before year-end.

This is the view of Tom Kendall, Vice President for commodities research at Credit Suisse. Speaking on Mineweb.com's Gold Weekly podcast, Kendall said the bank remains rather bullish about gold's prospects for 2011 but, he wouldn't be surprised if things quieten down in the run-up to the new year.

He says there has already been some evidence of this in the key Indian market and the Middle East has also been fairly quiet.

He adds, "As the prices ticked up back about $1,400 we've seen a push up in scrap volumes coming through into the market as well.  So from the physical side there are reasons to be a little bit cautious as we go through to the close of the year.  But from the investment side of the market still a lot of interest from shorter-term players.

"Technically the chart looks pretty good for gold both in US dollar terms and in euro terms and although some of the bigger macro funds will be reducing risk ahead of the close of the year, we've probably got another week to ten days or so of decent activity in the shorter term money flows."

Asked about the question of real interest rates and whether or not, Credit Suisse expects them to turn any time soon, Kendall, said, "The question of real interest rates is always there at the back of one's mind when looking at the gold market but from what we see out of the United States in terms of monetary policy in recent statements by Ben Bernanke and by the members of the FOMC it's clear to us and to our strategists in the United States that we are going to remain in a very low or even negative real interest rate environment in the United States for some considerable time to come and by that I mean at least 18 months and potentially much longer.

Moving into 2011, Kendall says the other big factor he is going to be watching is the developments within the Chinese market.

"I was in Shanghai last week and it is clear that there is a considerable amount of bullishness within the Chinese market about gold and the market is expanding and developing and evolving quite rapidly both in terms of the number of players coming in and in terms of the products that are available to investors and that's going to be one of the key themes as we go through 2011.

But, he cautions, while we are seeing a change in the investment market in places like China in that there is a strong pickup in demand from retail accounts for gold investment products primarily backed by physical gold, there is also a strong speculative element in the market.

And, lot of it "is also relative to what's going on in other asset classes so you have to keep an eye on what's happening in the property markets and the equity markets there as well."

Source: www.mineweb.co.za