$1,000 gold now more floor than ceiling

The price that was once an invisible ceiling, is now more likely to be the level at which a fall in the gold price bottoms out

PERTH - 

The once magical US$1,000 an ounce price for gold - once considered unachievable - will be increasingly regarded more as the future "bottom out" floor price in the immediate years ahead, according to a senior economist with the major Australian bank Westpac.

Senior economist Huw McKay told the Paydirt Australian Gold Conference in Perth today that the gold price had stepped up year on year by about US$100 an ounce above predictions, for at least the past five years.

"What we did not know was going to happen was that we were going to have such an enormous collapse in risk appetite that pushed gold beyond the US$1,000 magical barrier," McKay said.

"That has changed gold trends forever and what was once an invisible ceiling, is now more a level where we talk about the US$1,000/oz price as more of a floor price going forward.

 "It is now being seen as the level at which any plunge in the gold price will start to pull out of such a dive."

McKay attributed the gold price pressures as due to the change in demand for jewellery - from two thirds of world gold consumption in 2007 to around 40% currently.

"In parallel with this, there has been an expansion in exchange traded products which have grown from accounting for 7% of total gold consumption in 2007 to 19% now.

"This is a dramatic trend movement move and it is here to stay," McKay said.

"World equity markets and financing has so much uncertainty to it that the allure of gold has never been stronger.

"Demands for gold has shifted to the investor, with very strong fundamental trends coming together to fuel investor appetite for things they can see, touch, hold and put in a warehouse. Gold certainty meets those criteria."

McKay said the turn towards gold had come out of all other asset classes as "investors try to get into something that holds value".

The Westpac executive predicted gold holding at around US$1,006/oz by the end of this year, moving only slightly higher to around US$1,030 by 2011.

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