How high will gold rise?

Despite breaking through the US$1200 per ounce mark overnight, an analyst told MINING DAILY it was unrealistic for gold to become the world's main foreign reserve and was cautious on continued price surges.

Gold spot prices surged once again overnight to break the US$1200 per ounce milestone for the first time in history.

The price closed at US$1200.20 per ounce, after rising up 1.51% (about US$17.90) from the previous day.

According to Resource Capital Research senior gold analyst Tony Parry, a fundamental shift in the perception of gold had driven the trend in recent weeks.

“There is that fundamental concern about the future of the US dollar as a reserve currency that is really driving the issue at the moment,” he told MINING DAILY.

“There is nothing new about the rise of the gold price in relation to weakness of the US dollar; that has been going on for the last nine months.

“However, we have seen a breakaway from that steady trend in the last six weeks as a result of a perceived change in the positions of many Central Banks towards the US dollar.

“This really came to a head when India bought the 200 tonnes of gold bullions from the IMF.”

Despite the strength of this breakaway trend, Parry is cautious on how high the gold price may rise in coming months and expects to see some stabilisation in the US dollar, which could quell the surge.

“I do not think it is total gloom and doom,” he said.

“Any stabilisation will cause people to realise that gold is not necessarily the whole answer.

“While it would take a brave man to pick an end to the surge, I am fairly cautious about whether gold will continue rising.

“I do not expect to see gold hit the $1500 mark and I would not be surprised to see some pull backs to more normal levels over the next two to three months.”

Parry believes it is unrealistic that gold will usurp the US dollar as the world’s primary foreign reserve.

“So much of the world’s reserves are still held in US dollars, so gold really is a fringe player,” he said.

“I believe gold only makes up around 1.5% of China’s foreign exchange reserves, while the vast majority is in US dollar-related assets.

“It is simply not realistic for countries like China to use gold as a vehicle to dramatically change the make-up of its reserves.”

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