September 29, 2005
By Jim Hawe Of Dow Jones Newswires
Yahoo news
TOKYO (Dow Jones)--The price of gold will likely bang its head against $500 an ounce later this year in a prelude to a run at $600/oz in 2006, according to the head of a Tokyo-based financial planning firm.
"Gold will probably touch, but not necessarily hold $500 this year. Then some time during the first half of next year, $500 will come to be recognized as the new floor for the market, setting up a possible test of $550 or even $600," said Koichiro Kamei, president of Market Strategy Institute Inc.
Gold hasn't been in the neighborhood of $600/oz since 1980.
Kamei, who serves as his firm's finance and precious metals analyst, doesn't see the gold price moving up in a straight line.
"There will of course be many ups and downs, but the market's trading range is gradually working higher," he said.
Kamei pointed to several factors driving the gold price, including strong physical demand from China and India, the massive trade and budget deficits in the U.S. and the likelihood of a gradual depreciation in the value of the U.S. dollar.
Higher energy cost could also fuel a rally in gold, which has long been a popular inflation hedge.
"Clearly, the prices of gold and oil have not been demonstrating their traditional linkage," said Kamei, noting that crude prices have risen by about 60% this year, while the price of gold has lagged behind with a gain of only about 12%.
"But I think this linkage will reassert itself a bit more from this fall," he added.
GOLD REMAINS POPULAR IN JAPAN DESPITE HIGHER PRICES
Kamei said that currently, Japanese investors looking to sell gold outnumber those that want to buy by a fairly wide margin, but this is to be expected with the price of gold in yen-terms rising for six straight years.
However, gold remains a popular inflation hedge in Japan and many in the nation's large elderly population like to accumulate the metal to be passed on to their heirs, he said.
"Traditionally, Japanese investment portfolios have been built on the three pillars of real estate, savings and stocks," he said.
But Kamei feels investors here should be adding a little gold to the mix.
"Any currency portfolio should certainly include gold. Investors need to look at gold as a currency," he said. "If the value of your dollar or yen holdings drops, the value of gold will likely be higher."
He also believes that the oft-stated target of assigning 5% of any portfolio to gold needs a little more flexibility.
"Some may want to invest as much as 15% of there assets in gold, while others will want 5% or less. It really all depends on individual investment styles," he said.
Kamei is encouraged to see a growing number of fund managers and other investors taking an interest in gold and feels that this growing appeal can only help the gold price.
"You need to have a wide base before you can build a tall mountain," he said.
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