Short view By Philip Coggan - Financial Times
Short view By Philip Coggan
Published: April 21 2006 03:00 | Last updated: April 21 2006 03:00Copyright by The Financial Times
It is getting hard to keep up with the action in the commodity markets, as almost every day brings a record high price for some metal or another. Gold briefly hit a 25-year high of $645 an ounce yesterday. And as prices surge, the predictions for future price levels get ratcheted higher.
Despite the late turnround in bullion yesterday, which took the yellow metal back to $613, gold bugs are enjoying a revival after 20 years of hurt that saw the bullion price slide from $850 to $250 an ounce.
Jim Rogers is not really a gold bug; he used to argue that lead had been a better investment than gold. But even this veteran investor, a long-term commodity bull, is arguing that bullion can reach $1,000 an ounce.
Paul Mylchreest of Chevreux is even more ambitious, saying that gold could spike to $2,000 if central banks compete to buy gold and if the US economy slides into either high rates of inflation or deflation.
Gold enthusiasts believe that official inflation numbers have been distorted by changes in calculation methods and that rampant credit creation will eventually show up in higher prices.
But while there have been some signs of inflationary fears in the Treasury bond market in recent weeks, the shift has not really been sufficient to justify the gold bugs' more aggressive forecasts. Furthermore, the widespread gains across commodity markets suggest a certain degree of speculative enthusiasm may be involved.
"Speculators and investors have the previous metals market by the scruff of the neck and are driving the prices higher," says Robin Bhar of UBS. "Participants in the market must understand that the faster the moves up in metals, the greater the risks of a major sell-off."
Chip Hanlon of Delta Equity is even more concerned. He points to the recent price movements in silver, which show an almost vertical take-off.
"I don't care what the asset is, when a chart starts to look parabolic, I get nervous," he says. "Those who are over-weighted in metals, either by design or as a result of this move, should consider lightening up."
Published: April 21 2006 03:00 | Last updated: April 21 2006 03:00Copyright by The Financial Times
It is getting hard to keep up with the action in the commodity markets, as almost every day brings a record high price for some metal or another. Gold briefly hit a 25-year high of $645 an ounce yesterday. And as prices surge, the predictions for future price levels get ratcheted higher.
Despite the late turnround in bullion yesterday, which took the yellow metal back to $613, gold bugs are enjoying a revival after 20 years of hurt that saw the bullion price slide from $850 to $250 an ounce.
Jim Rogers is not really a gold bug; he used to argue that lead had been a better investment than gold. But even this veteran investor, a long-term commodity bull, is arguing that bullion can reach $1,000 an ounce.
Paul Mylchreest of Chevreux is even more ambitious, saying that gold could spike to $2,000 if central banks compete to buy gold and if the US economy slides into either high rates of inflation or deflation.
Gold enthusiasts believe that official inflation numbers have been distorted by changes in calculation methods and that rampant credit creation will eventually show up in higher prices.
But while there have been some signs of inflationary fears in the Treasury bond market in recent weeks, the shift has not really been sufficient to justify the gold bugs' more aggressive forecasts. Furthermore, the widespread gains across commodity markets suggest a certain degree of speculative enthusiasm may be involved.
"Speculators and investors have the previous metals market by the scruff of the neck and are driving the prices higher," says Robin Bhar of UBS. "Participants in the market must understand that the faster the moves up in metals, the greater the risks of a major sell-off."
Chip Hanlon of Delta Equity is even more concerned. He points to the recent price movements in silver, which show an almost vertical take-off.
"I don't care what the asset is, when a chart starts to look parabolic, I get nervous," he says. "Those who are over-weighted in metals, either by design or as a result of this move, should consider lightening up."
posted by Carlos T Mock at 2:14 PM
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