Experts say no end in sight for gold's bull run

By Zhou Yan (China Daily)
Updated: 2010-10-12 10:15
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SHANGHAI - The yellow metal's bullish run will continue unabated, according to industry experts, even though the price has already soared by 23 percent this year.

That's on strong anticipation of a continued weakness in the US dollar, allied to an uncertain global economic outlook. Gold futures for December delivery, the most active contract on the Shanghai Futures Exchange, gained 1.66 percent to settle at 291.08 yuan ($43.57) per gram on Monday, its highest ever level.

Meanwhile, the price of gold soared to an all-time intra-day high of $1,366 per ounce on Thursday on the Comex in New York, as investors scrambled to buy the commodity as a safe haven when the dollar declined against other major currencies.

"The market was spurred by continued economic uncertainty in the United States, with the release of weaker than expected employment data," said Albert Cheng, managing director for the Far East at the World Gold Council (WGC).

The US Labor Department announced on Friday that the country's non-farm payrolls declined by 95,000 in September.

As a result, expectations are growing that the US Federal Reserve Board will announce an aggressive campaign of quantitative easing at the Federal Open Market Committee (FOMC) meeting in November, Wang Dapeng, an analyst at Zhejiang New Century Futures Co, said.

"Every leading currency is being devalued in the market against gold, and that's driving investors to increase their exposure to the commodity," Cheng from the WGC added.

The greenback will extend its weakness while the prospects for the US economy remain uncertain, said Li Maoyu, an analyst at Changjiang Securities.

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The surging gold price has also led to a hike in production in China, the world's largest miner of the precious metal.

The country's gold output totaled 217.95 tons in the first eight months of 2010, the Ministry of Industry and Information Technology said on Monday.

That's a rise of 8.85 percent from the same period last year.

Looking ahead, analysts expect to see bullion prices hit a new high as we enter the fourth quarter, the traditional peak season for purchases of the precious metal.

"Historically, demand for gold in India and China, the world's top two consumers, explodes during December as the New Year approaches," said Wang from Zhejiang New Century Futures.

"Demand from the industrial and jewelry sectors is likely to grow for the rest of 2010, as consumers become more accustomed to the higher price range," WGC's Cheng said.

Overall, gold's upward trend will continue over the rest of 2010, as looser monetary policies in the major economies are expected.

"Deflationary concerns in the US will keep the market on alert for further quantitative easing steps by the Fed in the run-up to the next FOMC meeting. This will sustain the downside risks for the dollar," said Cheng from the WGC.