Gold takes $US500 in its stride

Analysts and the gold industry continued to talk up the gold price this week as the precious metal broke the psychological $US500 an ounce barrier, its highest point in nearly 20 years.

But for all the talk of gold soaring on to $US1,000 an ounce within seven years, the market took the news in its stride, with analysts generally agreeing that, in the wake of gold’s highest price since mid December 1987, gold stocks were muted.

For the past few days it has not been a matter of if the gold price would break $US500/ounce, but when.

In real Australian dollar terms, however, the gold price is still less than it was in mid December 1987, when at $US499.75/ounce, the metal was worth $A696.52/ounce. At $US502 this week it was worth $A678/ounce.

However, there is no doubt the current price is a boon for the gold industry and no-one WA Business News spoke to was ruling out the possibility that the price could continue to rise.

Australia, the second largest gold producer in the world, produces about 260 tonnes of gold a year.

Bankwest chief economist Alan Langford said that, with some gold companies de-hedging and some inflation risk fears, “there may be some more upside, unless the oil price goes through $US70 a barrel”. Oil is currently around $US58 a barrel.

CommSec commodities analyst David Thurtell agreed, but said he expected the gold price could reach $US550/ounce in the first six months of 2006.

He said gold was traditionally sought amid fears of inflation, like those that arose with the recent spike in the oil price.

With the oil price back under $US60 a barrel, Mr Thurtell said some hedge funds had been shifting their money from oil into gold, which was also helping to push up the price.

Earlier this week, the president of US gold mining giant Newmont, Pierre Lassonde, predicted a gold price of $US1,000/ounce in five to seven years, while US bank Merrill Lynch has tipped $US725/ounce by 2010.

Gold demand in India, the world’s biggest gold consumer, has risen 47 per cent in the last year, while China’s consumption was up 14 per cent.