Gold 2007: Shiny Opportunity or Fool's Prospect?

Gold is currently down 14% from its $732 May high, but according to analysts surveyed late last week by Bloomberg its six-year rally is far from done. One factor juicing gold prices is the weak U.S. dollar. Louise Yamada of Yamada Technical Research says, "Gold is the purest play against the dollar," as countries trying to diversify dollar holdings buy gold. She sees gold above $730 next year and $3,000 gold within a decade. Deutsche Bank AG's chief metals economist Peter Richardson says made gold his favorite pick for 2007. JPMorgan Chase & Co. analysts John Normand and Jon Bergtheil on Dec. 7 said, "If you can only make one commodity investment," gold is the "choice for 2007." Five of the past six bear dollar markets led to a gold rally, and with the dollar now down 13.8% against the euro, it is in for its worst year since 2004. Gold is up 22% on the year and headed for its sixth straight annual gain, a streak unmatched since it was unpegged from the dollar in 1971. Gold bears cite the unlikelihood of gold continuing to outperform indefinitely, hidden strength in the dollar, or the possibility that the dollar/gold relationship will undo. But bulls say gold remains cheap relative to other assets: Gold's $850 high in 1980 is equivalent to $2,100 of today's dollars. Seen another way, an ounce of gold was worth 23 barrels of oil in 1980; today's it's worth just 10. Of the 30 traders interviewed, 12 advised buying gold, 10 said to sell, and 8 were neutral.
• Sources: Bloomberg
• Related commentary: Return To The Gold Standard?, Gold Increasingly Used As Hedge Against Currencies; Gold ETFs Growing, Dow-to-Gold Ratio Tells a Bearish Picture, Buying Bullion: The Smart Metals Investment, Dollar Breakdown to Ignite Gold Market, Who Owns The World's Gold - And Who's Buying, Who's Minding the Mint?
• Potentially impacted stocks and ETFs: Newmont Mining Corp. (NEM), LIHIR GOLD LTD ORD (LIHR), Barrick Gold Corp. (ABX), Goldcorp Inc. (GG), AngloGold Ashanti Limited (AU). ETFs: Market Vectors Gold Miners ETF (GDX), SPDR Metals and Mining ETF (XME)

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