Gold Bulls Claim Price Could Double to $3,000 in Five Years

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Now some fund
managers claim the price could more than double to $3,000 (£2,080)
per ounce within five years.

Heavily indebted
governments throughout the developed world are struggling to fill
deficits of black-hole dimensions in public finances by imposing
spending cuts and tax rises. Both are expected in Britain’s emergency
Budget on June 22 and neither will be popular.

But keeping
interest rates lower than inflation and letting the currency take
the strain is another way to reduce the real value of debt. You
can see why politicians may feel that is the ”least worst” option.

Stealthily
robbing savers by eroding the purchasing power of money is less
likely to cause riots in the streets than spending cuts, because
inflation tends to hit older people hardest while unemployment hits
the young.

Governments
can devalue their own currencies, but it is harder for them to make
more gold. That fact helped prompt record inflows of $484m (£336m)
into gold exchange-traded commodities this week, while gold trading
volumes peaked at $2.1bn (£1.45bn).

However, the
precious metal is not a one-way bet and it slipped back below $1,200
(£830) on Thursday as some investors took profits amid anxiety
about an unsustainable bubble in the gold price.

Graham French,
manager of the M & G Global Basics Fund, was undeterred. He
said: "In a scenario of rising sovereign risk, where government
finances are hugely overstretched and central banks have been systematically
devaluing paper money, gold’s value as a safe haven and a stable
physical currency can only increase over the medium term.

"Against
this backdrop, the gold price could go much higher than these already
elevated levels. It wouldn’t be too far fetched to see it rising
above $2,000, or even up to $3,000."

Mr French’s
strategy is based on the belief that things that emerging markets
sell will fall in price over the next five years, while things that
emerging markets buy will rise in price.

The explanation
is that demand from the heavily indebted developed world may remain
subdued, while demand from largely debt-free consumers in emerging
markets will rise.

Rupert Robinson,
chief executive of Schroders Private Bank, said: "Gold is setting
record highs in almost every currency, despite headwinds including
a strong dollar and monetary tightening in India and China, the
main end markets for gold. Today’s economic environment makes gold
a must in any client portfolio.

“Interest
rates are at historically low levels; central banks are bailing
out the system; we have seen a huge amount of quantitative easing;
currencies being debased and governments around the world are short
of money.

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the rest of the article

May
21, 2010

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