Gold rush

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The precious metal jumps to new record high as investors hedge against concerns that a US recovery could spark inflation.

Gold prices in Vietnam reached a record high this week following a surge on global markets as investors bought the metal to hedge against a declining dollar and spiking inflation.

Gold was traded at VND23.02 million per tael, or US$1,074.81 an ounce, Vietnam's largest trader Saigon Jewelry Holding Co. said on its website Thursday morning. A tael equals 1.2 ounces.

Tran Thanh Hai, general director of the Vietnam Gold Business Co., warned that investors who plan to cash in on the hike by borrowing gold bars from the bank and returning them when the gold price drops should be cautious.

"The gold price on international markets continues to rise after breaking the resistance level of $1,034 an ounce," Hai told Thanh Nien. "The domestic gold price often tracks the international price. However, investors should be cautious as domestic price also relies on the exchange rate between the US dollar and the dong."

Hai also expected the precious metal price to reach VND24 million per tael, or $1,120.76 an ounce, and said it "will most likely not fall back to the VND21- 21.5 million mark."

'Off the charts'

Investors should hold onto long positions in gold as bullion has "significant upside potential" and could reach as high as $1,500 an ounce, Barclays Capital told Bloomberg, citing trading patterns.

"Having rallied 'off the charts,' we are left to resort to projections and extrapolated trendlines to forecast where the move might stop," Jordan Kotick, global head of technical analysis at Barclays Capital, wrote in an email.

So-called trendlines are used to determine momentum and are found by connecting an asset's high prices and low prices over a given period to form a channel.

"History suggests a run at $1,500," Kotick wrote. "Taking it a step at a time, in the coming weeks, we view consolidation above $1,020 as extremely positive, targeting $1,050 initially, and $1,120," he added.

"We suspect the rally is wave 3 of 5, indicating an eventual push toward the $1,120 area and potentially beyond into year end," wrote Kotick, referring to the Elliott Wave theory, which holds that market swings follow a predictable five-stage pattern of three steps forward, two steps back.

Gold's rally this year to a record shows commodity investors remain concerned that the US economic recovery will spur inflation, even as Wall Street forecasts and government bonds suggest stable prices.

Bullion has jumped 18 percent this year, heading for a ninth straight annual gain, after futures touched a record $1,045 an ounce on Tuesday in New York amid increasing demand for a hedge against inflation and a weaker dollar. Economists surveyed over the past month expected US consumer prices to fall 0.5 percent this year, the first decline in five decades.

Inflation forecaster

Demand for gold is increasing as US government debt reaches record levels and the Federal

Reserve keeps interest rates near zero percent. Inflation surged to a 14.8 percent annual rate in March 1980 after a four-year gain in gold that included a then-record $873 in January 1980.

"Gold is a forecaster of inflation instead of a coincident indicator," based on its surge before 1980, said Dan Greenhaus, the chief economic strategist at Miller Tabak & Co. in New York.

"There's nothing right now that says inflation will break out to all-time highs. But gold can move considerably higher from here. Should growth return, inflation will return."

Deutsche Bank AG forecast on October 1 that gold may top $1,100 in 2010. Mark O'Byrne, an executive director at Dublin-based brokerage GoldCore Ltd., said investor demand for a hedge against financial risk will send the precious metal to $2,000. He didn't specify a date.

Conflicting predictions

The outlook among gold buyers conflicts with government and economist forecasts as the US emerges from the worst slowdown since the Great Depression.

Federal Reserve Bank of New York President William Dudley said early this week that slowing inflation is "problematic" for the economy and that interest rates should stay low. His remarks bolstered comments made in the minutes of the Fed's September meeting that "inflation will remain subdued for some time."

Gross domestic product shrank in the past four quarters, including a 6.4 percent plunge in the first three months of the year, government data show. The economy will contract 2.6 percent this year, based on the median of 57 estimates in a Bloomberg survey as of September 11.

Consumer prices will fall 0.5 percent, before rising 1.9 percent in 2010, based on the median of 47 estimates collected by Bloomberg. The average gain in the previous decade was 2.5 percent.

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