Gold May Reach Record on Weaker Dollar, Survey Shows

Sept. 9 (Bloomberg) -- Gold, trading near an 18-month high in New York, may advance to a record before the end of the year as investors seek to hedge against a weaker dollar and possible inflation, a survey showed.

Bullion futures will surpass the $1,033.90 an ounce reached in March 2008, according to 10 of 12 traders, investors and analysts surveyed by Bloomberg. Gold for December delivery climbed as high as $1,009.70 an ounce on the New York Mercantile Exchange’s Comex unit yesterday after breaching $1,000 for the first time since Feb. 20.

Governments have cut interest rates and the Group of 20 nations have pledged about $12 trillion to combat the first global recession since World War II, International Monetary Fund data show. The U.S. Dollar Index, a six-currency gauge of the dollar’s strength, slid to more than an 11-month low today.

“Extremely loose fiscal and monetary policies are likely to create an inflation headache down the road,” said Mark O’Byrne, managing director of broker GoldCore Ltd. in Dublin. “With the dollar’s global reserve status being increasingly questioned, the dollar is likely to fall further in coming months and lead to further diversification into gold.”

December gold futures slipped 70 cents, or 0.1 percent, to $999.10 an ounce at 10 a.m. in New York today. The metal may climb as high as $1,200 this year, O’Byrne said in an e-mail.

Gold Trust

The SPDR Gold Trust, the biggest exchange-traded fund backed by the metal, reached a record 1,134.03 metric tons on June 1. The fund, which held 1,077.63 tons as of Sept. 8, overtook Switzerland as the world’s sixth-largest gold holding. Bullion held in ETF Securities Ltd.’s exchange-traded products reached a record 8.066 million ounces (250.9 tons).

Barrick Gold Corp., the world’s largest producer of the metal, said it plans to record $5.6 billion in third-quarter costs to eliminate fixed-price gold-sales contracts, or hedges, as it bets that bullion prices will climb. The company said it had contracts for 9.5 million ounces of gold as of Sept. 7.

The decision will put pressure on Johannesburg-based AngloGold Ashanti Ltd., which holds most of the industry’s remaining forward sales, to do the same, said John Reade, head of metals strategy at UBS AG in London. Mark Cutifani, AngloGold’s chief executive officer, declined to say in an interview yesterday whether he will accelerate efforts to close out the company’s hedges.

Down to $950?

Gold producers have been eliminating hedges after eight years of successive price increases left them with contracts to sell gold below market prices.

The metal may fall as low as $950 an ounce before rebounding to $1,200 “toward the end of the year,” Ashraf Laidi, chief market strategist at CMC Markets in London, said in a Bloomberg Television interview yesterday.

Bullion may climb as high as $1,150 an ounce as the dollar weakens, inflation potentially accelerates and investors switch from energy to precious metals, Investec Asset Management said today in a report.

President Barack Obama has increased U.S. marketable debt to an unprecedented $6.78 trillion as he borrows to spur the world’s largest economy. Goldman Sachs Group Inc. predicts that the country will sell about $2.9 trillion of debt in the two years ending next September.

Consumer Prices

“Markets believe that the Federal Reserve is not going to withdraw liquidity fast enough and there will be inflation,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.

U.S. consumer prices will drop 1.6 percent this quarter from a year earlier before rising 1.4 percent in the fourth quarter and 2 percent in each of the subsequent two quarters, according to the median estimate of economists surveyed by Bloomberg News.

Gold futures dropped 14 percent in the six weeks after they last reached $1,000. Investors should avoid buying the metal at that level because investment demand is weaker than it was earlier this year, UBS’s Reade said in a note yesterday.

Demand in India, the world’s largest buyer of the metal, is about 5 percent to 10 percent of last year’s peak, partly because of drought in parts of the country, he said. The bank maintained its one-month and three-month forecasts for the metal at $950 and $1,000 an ounce respectively.

Gold may reach $1,050 in the “short term” before falling, Miguel Perez-Santalla, a sales vice president at Heraeus Precious Metals Management in New York, said in an e-mail.

“The market keeps talking inflation, but the price of gold is already inflated,” he said. “I won’t put my money into gold, and I know many traders and their families that are rummaging their jewelry looking for scrap to sell to take advantage of these high prices.”

Scrap sales were a record 1,218 tons last year, increasing supply, according to London-based researcher GFMS Ltd. Second- quarter sales may have shrunk to 350 tons, more than 40 percent less than in the preceding three months, GFMS said July 31.