(Reuters) – By Pratima Desai
Gold prices will hit $1,500 an ounce in 2011 when oil prices move back above $100 a barrel as emerging market growth creates shortages, Bank of America Merrill Lynch said on Monday.
“For the world economy to resume growth of 5 percent, commodity supplies must expand by a similar rate,” said Francisco Blanch, head of global commodity research at the U.S. bank.
“With emerging markets likely to lead the global recovery, too much money chasing too few barrels could bring another spike in oil prices.”
Investors use gold as a hedge against inflation, which erodes wealth and is often triggered by rising oil prices.
Spot gold hit an 18-month high of $1,023.85 a troy ounce last month. It touched a record high of $1,030.80 an ounce in March 2008, while oil saw an all-time high above $147 a barrel in July 2008.
Crude is now around $70 a barrel and gold at around $1,003 an ounce. (Note: As of October 21, 2009 gold closed just above $1,058 an ounce.)
If government stimulus measures to kick-start the economy are successful, commodity markets will revisit the record high oil price, Blanch said at the Commodities Week conference organized by Terrapinn.
“Supply will not be there, capital expenditure by oil majors and miners has fallen dramatically. This will come back to haunt us.”
Structural supply and demand imbalances and a misallocation of capital on a global scale mean high volatility in commodity markets, he said.
“The financial sector pushed too much of the world’s capital into real estate rather than energy in recent years due to political constraints and loose regulatory structures.”
Blanch said there were not enough speculators. “If there were, there would have been more projects up and running by now.”
All Things Considered, John’s Commentary….
When the banks and brokerage houses go bullish, especially this bullish on gold, even they have become believers! Remember, bullish on precious metals has historically meant bearish on paper assets. Bank of America Merrill is in the paper asset business!
