The bull market in gold is maturing and could peak above $1,300

• tanvi_singh
• December 17, 2009

The bull market in gold is maturing and could peak above $1,300 an ounce next year, before a stronger US dollar from higher interest rates forces a retreat, Morgan Stanley said on Wednesday.

The Wall Street bank forecast a base price of $1,200 for gold in 2010, up 20 percent from previously, and $1,125 in 2011, up 7 percent from earlier. But it also reduced price projections for 2013 and beyond, saying the prospects of a rising dollar would increasingly weigh on gold. Gold traditionally moves in opposite direction to the US currency.

“We still think that prices have the potential to move higher in 2010 to a new peak before trending lower, albeit in volatile trading conditions,” Morgan Stanley said in a research note on gold.

US gold futures reached an all-time high of $1,227.50 an ounce this month as the dollar sank to 15-month lows against other major currencies. They have corrected since to below $1,140 as the dollar rebounded amid speculation that strengthening economic conditions could pressure US interest rates higher from current near-zero levels.

Morgan Stanley said gold’s allure over the next two years will depend largely on financial demand, which is driven by growth in money supply, and currency demand, which is based on the value of the dollar. Under its base case scenario, prices could peak at $1,250 to $1,300 next year, Morgan Stanley said.

But, in a bull market environment, they could go as high as $1,325 to $1,350, it said. “We currently attach a 60 percent probability to our base case, but only a 15 percent probability to our bull case, as we anticipate that there is a greater risk that the timing of the turn in the interest rate cycle will occur earlier than currently forecast,” it said.

It also said it had a bear market forecast that assumed the market had topped out at its most recent peak of $1,227.50. “We attach a 25 percent probability to this outcome,” it said.
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• Last Modified: December 17, 2009
• Filed Under: Latest News, MARKETS, NATION, WORLD