"Bust may follow as gold hits $1500"

Quoted from ARTICLE

GOLD hit a record $1500/oz yesterday, but analysts are already warning that the price could crash.

Gold’s decade-long rally to breach $1500 has been mirrored by silver’s rise to 1980 highs.

But both metals, historically regarded as safe-haven bets, experienced a sharp correction after the 1980s. Some investors are wondering whether the circumstances are the same now.

When the 1980s crash in the gold price happened, there was an "unsustainable rise" just before the peak was reached, Nick Goodwin, a retired gold analyst who has followed the metal since 1980, said yesterday.

This time the increase to $1500 and beyond had been steady. But in 1980 there had been a steep increase before a sudden and sharp downward turn, Mr Goodwin said.

"The crash is still coming, we are still in the first phase, there’s a second phase to come," he warned.

Gold had gained more than five-fold from the beginning of 2000 to yesterday’s 5pm price of $1504,05/oz.

Over the same period, silver climbed almost tenfold from $5,38/oz to $45,08/oz.

Gold was on course for 11 successive annual increases, its longest run of gains since 1920. It gained 5,5% this year after a 30% jump last year.

"When we reach the second phase, we’ll be seeing gold jump $100 a day and then crash," Mr Goodwin said.

At the end of the 1960s, gold traded at $35,17/oz and rose to a then record of $850 on January 21 1980. After reaching its peak, the metal slumped to a low of $284,25 in the decade that followed.

On January 18 1980, silver was valued at $49,40/oz before it plunged to a decade low of $4,85/oz.

"We are not at 1980s levels yet," Paul Walker, GFMS CEO, said yesterday. "In real terms we are not at the same point, but the market is sending a clear signal that they don’t trust monetary authorities."

In adjusted dollars, the $850 gold sold for in 1980 would be worth about $2248/oz now, Mr Walker said.

The downside risks to a continued rise in the gold price are central banks hiking rates to stem inflation.

Investors place money into gold and silver to hedge against inflation, rather than letting it erode in banks. The oil price rose 2% yesterday on inflation concerns, spurring the rush to gold.


Bullion is "where it is, cause there’s nowhere else to go", David Shapiro, Sasfin Securities director, said. "As long as uncertainty persists, gold will keep going up."



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