Gold set to extend post-Fed gains; peak in 2011: Reuter's poll

NEW YORK Fri Nov 5, 2010 4:19pm EDT

NEW YORK (Reuters) - Gold's record-breaking climb should continue for at least six months, corresponding to the planned duration of the Federal Reserve's monetary stimulus, according to a Reuters poll conducted on Thursday and Friday.

Two out of three respondents see gold prices topping out between $1,400 and $1,500 an ounce on an interim basis, with most analysts surveyed expecting prices to peak during the first or second quarter of next year.

Thirteen of the 20 analysts, traders and fund managers polled by Reuters said the price of bullion will remain in an uptrend well into the first half of 2011, after the Fed on Wednesday unleashed a program to buy $600 billion of government bonds in a new round of quantitative easing (QE).

The Fed's QE package has reinforced the argument for holding gold, as it pushes the dollar firmly onto a downward path and raises the risk of inflation.

"QE devaluates the currency, so gold...and almost all commodities will be beneficiaries as people start to switch from financial assets to commodities, something they feel more tangible as the money printing continues," said Standard & Poor's Equities and Metals analyst Leo Larkin.

The forecast duration of the gold rally roughly coincides with the Fed's proposed time frame, and analysts believe the Fed will have no choice but to unleash additional rounds of stimulus to prevent the economy slipping back into recession.

"The underpinning here is that the Fed is stating very openly that it is more worried about deflation than it is about inflation," said Frank McGhee, head precious metals trader at Integrated Brokerage Services., adding that gold should benefit from this round of QE for 6 months.

The U.S. central bank said this week it would buy about $75 billion in longer-term Treasury bonds per month through the end of June 2011, and it also left the door open to adjusting its scheme down the road. [ID:nN03120542]

Spot gold surged as much as 6 percent since the Fed's announcement on Wednesday, reaching an all-time high of $1,397.80 an ounce on Friday.

GOLD PULLBACK NEXT YEAR?

Nine respondents said gold is likely to experience a correction in the first or second quarter of 2011, as the market anticipates the expiration of QE2.

"Gold's rally is going to last until interest rates start to rise, and then you could see a collapse you have never seen in your life," said Leonard Kaplan, president of Prospector Asset Management, who believed gold prices will peak in the third quarter of 2011.

S&P's Larkin gold could peak at $1,400, a round number which makes traders hesitate to buy further.

"Gold could still be a multi-year bull market, as long as the Fed continues printing money and other governments in around the world do the same in an attempt to offset what the Fed is doing," Larkin said.

However, four others said they expect a near-term pullback to occur in the fourth quarter of 2010.

In terms of a peak price, 65 percent of respondents said that gold's next decline will take place from a high between $1,400 and $1,500.

The price of gold has soared by almost $250 an ounce from a six-month low at $1,160 an ounce in late July, largely propelled by a weak dollar and expected Fed easing.

Four analysts including Peter Buchanan, senior economist at CIBC World Markets, said gold's will rise above $1,500 an ounce before peaking.

"Fed's re-tightening will kill gold's rally, (but) that won't happen until late 2012, perhaps even 2013, since they'll have to 'unwind' QE first," said Buchanan.

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