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Financial Times: Stars aligned for gold; bullion fund may get SEC OK next week

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  • GATAComm@aol.com
    Gold market harking back to 1970s By Kevin Morrison Financial Times, London Friday, November 5, 2004
    Message 1 of 1 , Nov 6, 2004
      Gold market harking back to 1970s

      By Kevin Morrison
      Financial Times, London
      Friday, November 5, 2004

      http://news.ft.com/cms/s/a7beab52-2f1e-11d9-984e-00000e2511c8.html

      The gold market is starting to resemble its 1970s form
      after the price of the precious metal hit a 16-year high
      on Friday, making the current rally the second-longest
      since bullion was freely floated in 1971.

      But unlike the 1970s, when inflation helped boost prices,
      this time it is lack of confidence in the dollar that is
      causing the metal to glisten again.

      "It looks like we might have a real market back," said
      Peter Smith, a senior gold trader at JP Morgan Chase
      in London.

      The current rally has lasted since April 2001, or three
      months after President George W. Bush was sworn in
      for his first term. But the rally followed 21 years of price
      declines from the metal's peak at $850 per troy ounce.

      Friday's high of $433.90 is about half the record in
      nominal terms but nevertheless represents a 70 percent
      rise over the past 42 months, a longer rally than the one
      that took prices to record levels in the late 1970s.

      Michael Lewis, head of commodities research at
      Deutsche Bank, said the weakness in the dollar was
      expected to remain for several years as the United
      States would remain stuck with high budget and trading
      deficits for years to come.

      "The current gold rally looks set to become the longest
      in modern times," said Mr. Lewis. For that to happen the
      gold price would have to be higher in May than it is now,
      which would make it a 49-month rally, longer than the
      one that followed the free floatation of gold after the
      collapse of the Bretton Woods agreement in January
      1971. That rally lasted until December 1974.

      Another factor, pushing gold prices higher is talk of
      impending approval by the Securities and Exchange
      Commission of the gold exchange-traded fund in the
      United States, an initiative backed by the World Gold
      Council. This gold investment product mirrors similar
      products list in London and Australia and provides a
      direct exposure to the gold price without going to the
      futures market, buying physical gold or gold mining
      shares.

      Traders said the approval could come as early as next
      week and that some hedge funds were taking positions
      ahead of an expected launch this year.

      "The stars are aligned for gold. There is a perception
      that there will be a structural weakness in the dollar for
      some time," said Trevor Steel at Baker Steel Capital
      Managers, a hedge fund.

      Mr. Steel said the fundamentals for the physical supply
      of gold were tightening, as the industry had not been
      replacing production with new reserves.

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