Gold tipped to hit US$800 on soaring global demand

"There's no fever like gold fever," said Alvin Ching Man-kit, president of the Chinese Gold & Silver Exchange Society, citing a pet saying of one of his group's analysts.

Winnie Pang

Monday, May 08, 2006

"There's no fever like gold fever," said Alvin Ching Man-kit, president of the Chinese Gold & Silver Exchange Society, citing a pet saying of one of his group's analysts.

The society expects the price of gold to reach US$700 (HK$5,460) an ounce soon and US$800 next year, fueled by strong demand from China, India and the Middle East and oil-related tensions.

Gold reached a 25-year high of US$684.90 an ounce in London Friday as worries that Iran's refusal to halt uranium enrichment could lead to a disruption of its oil exports spurred inflation worries and more demand for bullion as a hedge.

Gold last peaked at US$880 in 1980 amidst soaring inflation and another Iran-US standoff.

According to the World Gold Council, demand for gold jewelry grew strongly in East Asia and the Middle East in 2005. India and Saudi Arabia saw double-digit rises in gold sales volumes, with gains of 14 and 12 percent respectively. China, Taiwan, the United Arab Emirates and Turkey each posted gains of 6 to 8 percent.

"It wouldn't be surprising to see the gold price reaching US$1,000 if the Chinese and Indian governments increase the proportion of gold in their foreign reserves," Ching said.

Last month, Jim Rogers, who co- founded the Quantum hedge fund with George Soros in the 1970s, said gold will reach US$1,000 but didn't predict when.

At the end of March, China's foreign reserves, the largest in the world, amounted to US$875.1 billion.

According to the World Gold Council, China had 600 tons of gold in its reserves in March, representing just 1.3 percent of its total. That compares to shares of as much as 50 percent among Western countries.

In face of the weak US dollar, many economists expect Beijing to increase the share of gold in its foreign reserves. Between 70 and 80 percent of the nation's foreign reserves are believed to be parked in US dollars.

"No one believed the gold price would rise," Ching said.

"The Western bankers asked: `Who would buy gold?' People in Asia will buy gold if they are rich."

Indians and other Asians like to buy gold for weddings, birthdays and other ceremonies, he said. With wealth rising in many Asian countries, the potential market is huge. China is now the fastest growing economy in the world and India is not far behind. A key impetus for the market came last September when Beijing lifted restrictions on citizens' holding gold coins and nuggets.

Ching believes gold will rise at least 20 percent annually in the next three or four years. "The gold price rally is in its second phase. There are two more phases to go and each will last around two years."