Experts see potential for higher gold prices

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By Hao Li | June 30, 2010 1:14 AM EST

Gold has enjoyed an impressive run in 2010 as comex-traded gold futures rose from about $1,118 per ounce on January 4 to about $1,239 per ounce on June 28. On June 21, during intraday trading, gold hit an all-time high of $1,266.50.

Despite this run-up in prices, some experts think that gold may still have significant upside potential.


“In the next month or so, we think gold could run up to the $1,300/oz. region before seeing a decent pullback. Once this pullback ends, we think there could be an upside blowoff in prices to $1,500/oz. or perhaps much higher,” wrote Mark Arbeter, chief technical strategist of Standard and Poor's, in a research note.

 

Mark Luschini, chief investment strategist at Janney Montgomery Scott, pointed out that in the early 1980s, gold traded as high as $850. Adjusted for inflation, $850 is equivalent to $2,300 per ounce today. Therefore, from a historical inflation-adjusted perspective, gold is capable going to much higher levels.

 

Scott Redler, chief strategic officer at T3live.com, believes that later this year, gold can have a blow-off surge to the $1400-$1700 range.  At the current $1,238 level, Redler believes that gold is “not a bubble yet.” He said that gold's rally has been methodical and “trading perfectly” from a technical perspective. Commodities top with violence and that has not happened with gold so far, explained Redler.


Luschini added that bubbles usually happen in an asset when “everybody believes it is going to continue to go up.” He does not currently see that happening with gold and still sees potential buyers on the sidelines who have not jumped on the gold bandwagon.


 Luschini remarked that for fundamental analysts, it is hard to have a price target on gold – they can perhaps, at best, have an opinion on the direction of prices. Demand for gold in industrial uses and jewelry-making are not the main factors that drive prices. And unlike stocks, gold does not generate any cash flow (cash flow is used by equity analysts to set price targets ).

 

Luschini said that gold is currently trading on “fiscal uncertainty” and it is therefore hard to put a numerical price target on it.

 

Redler remarked that gold traded on fear in 2008, inflation in 2009, and sovereign debt fears in 2010. Redler has been long gold since 2008 and is currently taking technical cues from the market and adjusting the size of his position accordingly.

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