Gold likely to slip below $1,200 by end 2009

After a vintage 12 months which has seen the price of gold shoot up 60 percent, the metal is likely to slip below $1,200 per ounce by the end of 2009 as investors cash in, a Reuters poll showed on Thursday.

In a survey conducted between Monday and Wednesday this week, 18 of 33 analysts, traders and funds said they expected prices to fall below the psychological marker.

The market's bullish tone is still seen remaining intact, however, as around a quarter of those surveyed see prices ending 2009 in a $1,200-$1,250 range.

Despite price-supportive expectations for further dollar weakness and fresh emerging market central bank buying, the speed of bullion's rally to record highs above $1,225 an ounce has raised fears the market has gone too far, too fast.

"The massive long positions piled up on COMEX should be unwound to some extent. So, I think the market is somewhat in a weak bias toward the year end" said Naomi Suzuki, senior analyst at SC Asset Management Co in Tokyo.

One respondent, Darren Heathcote, head of trading at Investec Australia in Sydney, expects to see a still more dramatic correction in prices to a range of $1,050-1,100.

Seven respondents expect the metal to slip back into a range of $1,150-1,200 an ounce, six more see it dipping into the $1,100-1,150 range, and another four expect it to fall to $1,050-1,100 an ounce.

But this remains well above the longstanding record high of $1,030.80 spot gold broke through as part of its current run higher in early October. 

ROOM FOR MORE GAINS?

The main support for gold is expected to come from prospects for the dollar, with bullion likely to benefit from attempts by central banks and other investors to switch out of the U.S. currency and into other assets.

Eight respondents saw prices ending the year in a $1,200-$1,250 range, fully prepared for extra price strength as 2010 progresses.

"I'd expect buyers to come in to position themselves for continuing strength in 2010" said Charles Kernot, an analyst at London's Evolution Securities.

A similar number saw gold pushing higher still, with six respondents expecting gold to end the year in a range of $1,250-1,300 an ounce.

Two more, both U.S.-based, expected prices to rise above $1,300 an ounce, citing fears over the stability of paper assets and prospective inflation among other factors.

"Prices should remain supported by ongoing weakness in the dollar and by anticipation of central bank reserve diversification" said New York-based MF Global analyst Tom Pawlicki.

"Until Washington cuts back on spending, the prospects for a slow U.S. economic recovery will discourage holding dollar assets and will enable gold to compete with equities for marginal investment" he added.

News that the Reserve Bank of India had bought 200 tonnes of gold, and subsequent announcements of further acquisitions by the central banks of Sri Lanka, Mauritius and Russia, have helped gold to rally some 16 percent in the last month. 

"Central bank diversification into gold from the dollar is still ongoing, as Q2, Q3 and Q4 purchases of gold has been very profitable" said Wong Eng Soon, an investment analyst at Phillip Futures in Singapore.

"With the Fed committing to keep interest rates low for an extended period of time, the dollar will continue its steady downward trend, and gold will continue to benefit on its inverse relationship with the dollar" he added.

Even those who expect to see some correction in prices acknowledge that it may be short-lived. A brief price slip below $1,140 an ounce last Friday was quickly met by dip buying as traders took the opportunity to buy into the market.

"Downside room would be limited because buying interest is strong on any dips and will likely extend well into next year" said Naomi Suzuki.

ORGANISATION PRICE RANGE

Investec 1000-1050 FC Stone 1050-1100 Kitco Bullion Dealers 1050-1100 Volkswagen 1050-1100 Undisclosed 1050-1100 Commerzbank 1100-1150 Saxo Bank 1100-1150 Italpreziosi 1100-1150 Landesbank Baden-Wuerttemberg 1100-1150 SC Asset Management 1100-1150 Undisclosed 1100-1150 CPM Group 1150-1200 Calyon 1150-1200 Nihon Unicom 1150-1200 Standard Bank 1150-1200 CIBC World Markets 1150-1200 RBC Capital Markets 1150-1200 Midas Fund 1150-1200 Phillip Futures 1200-1250 Evolution Securities 1200-1250 DundeeWealth Economics 1200-1250 Analytics Research Corp 1200-1250 Okato Shoji Co 1200-1250 Bank of America-Merrill Lynch 1200-1250 Sarhan Analysis 1200-1250 MF Global 1200-1250 Cabot Money Management 1250-1300 Fujitomi Capital Ltd 1250-1300 Undisclosed 1250-1300 Euro Pacific Capital 1250-1300 Heritage West Financial 1250-1300 Prospector Asset Management 1250-1300 Blanchard Economic Research 1300 plus Goldmoney 1300 plus