Gold could hit $1,400 next year - ScotiaMocatta

The research house says the rise could come as investors turn to the metal as a store of value

Posted: Friday , 23 Oct 2009

LONDON (Reuters) -

ScotiaMocatta, the precious metals division of the Bank of Nova Scotia, said on Thursday gold prices could rise as high as $1,400 an ounce in 2010 as investors turn to the metal as a store of wealth.

A floor is likely to be established next year at $850 an ounce, the bank added.

"Gold is going through a very interesting time, but there are a multitude of factors influencing the price, some of which are quite contradictory, such as the presence of deflation and the fear of inflation," it said in a research note.

"We also have an uneasy feeling that after the near catastrophic events seen over the past 12 months, the sharp recovery seen since March seems too good to be true, and for that reason it probably is."

Any further signs of instability in the financial markets are likely to send gold prices considerably higher, it said.

The trend for governments to devalue their currencies is also denting faith in fiat -- or paper -- currencies and boosting the appeal of assets with intrinsic value, it added.

"The fact U.S. dollar creditors are talking about the need for another global reserve currency shows that they are losing faith in the dollar," it said.

Spot gold rose to a record high of $1,070.40 an ounce last week as the dollar slid to 14-month lows against the euro, boosting the metal's appeal as an alternative.

Among other precious metals, silver is likely to outperform gold on the upside and the downside, the bank said, with prices seen in a range of $13-25 until end 2010. The grey metal was at $17.57 an ounce at 3:54 p.m. on Thursday.

BOUNCE-BACK

Investment demand is likely to remain strong next year, but a bounce-back in industrial demand will also lend support. Investment will be necessary, however, to mop up excess supply.

"Silver has benefited from being both an industrial metal and a cheap precious metal," Scotia said.

"Industrial metals have rallied strongly in anticipation of an economic recovery and as a cheap precious metal, (silver) has won market share from gold jewellery."

Platinum prices are likely to stick to a range of $1,100-1,900 an ounce and palladium a range of $250-420 an ounce next year as investment buying stays strong and industrial demand for the autocatalyst materials recovers, Scotia said.

Platinum was trading at $1,357 an ounce, and palladium at $333.50 an ounce.

Rhodium prices, which are currently at $1,800 an ounce, are seen ranging between $1,400 and $3,000 next year.

"High levels of buying through exchange-traded funds shows strong investor interest, which is likely to continue as the longer term outlooks for the platinum group metals remain bullish," said ScotiaMocatta.

"Fund interest has also ballooned, but that may be in anticipation of PGM ETFs being launched in the United States."

(Reporting by Jan Harvey; editing by James Jukwey)