Gold Falls Off Eight-Year Highs; 2004 Forecast Mixed

December 11, 2003

Gold Falls Off Eight-Year Highs; 2004 Forecast Mixed

Gold prices fell to around $404 an ounce on European markets Dec. 11, as a slightly steadier dollar and profit taking chipped away at this week's eight-year highs, when spot gold hit almost $412, according to Reuters. Precious-metals analysts think there may be more profit taking to come, which could bring down the price a bit more. A recent drop in the price of gold equities, often a precursor to lower gold prices, also makes an argument for more price reductions, say analysts.

Some trading houses forecasting the price of gold say there will be another 6%-15% gain in 2004, according to the Wall Street Journal. Analysts attribute their predictions to a belief the dollar will remain weak as U.S. government deficits grow and interest rates stay low. On the other hand, the stock market's strength and recent U.S. economic growth could still send gold prices down if investors abandon gold for stocks, say some dissenters. Another factor that could affect demand is gold's use in jewelry, says Jeffrey Christian, managing director of research firm CPM Group. He told WSJ jewelry-makers are likely to start creating lighter pieces to keep raw materials costs down. He predicts a 2%-6% decline in jewelry-related demand this year.

Christian says gold price rallies above $400-an-ounce have been sustained only twice during the past 25 years: 1979 to 1983, when gold traded as high as $825 an ounce; and 1987 to 1988, when it hit $497 an ounce. The first rally was driven by high energy prices, interest rates and inflation. The second was marked by a steep decline in the dollar and the stock market crash of October 1987. The analyst says for prices to rise much more right now, economic predictions would need to be very pessimistic, and they're not.

Meanwhile, platinum is staying close to Dec. 10's 23-year-high at $812 an ounce. Silver moved lower in the wake of gold, dropping down to around $5.53 per ounce. Palladium, a platinum group metal, also retained its steady level ranging from $207.00 to 212.00 an ounce. It has moved steadily higher this month, gaining some 11%, although most analysts saw any upmove limited due to the massive global oversupply in the metal.

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