Gold prices look set to rocket in 2007 with a sickly greenback and geopolitical tensions topping the list of driving factors, according to a broad cross-section of bullion market watchers polled by
The whole group, which includes miners, a portfolio manager and a coin dealer, sees the possibility of spot prices breaking through the 2006 high of around $725 an ounce, reached in May. Gold for immediate delivery sold for around $630 in late December, having risen from $520 in January.
What will be interesting to see is how well the group fares when compared with those surveyed for the annual London Bullion Market Association forecast, expected in mid-January.
Last year, most of those canvassed by the LBMA, a group dominated by bankers and consultants, woefully underestimated the extent of the rally, with an average forecast of $534.94. Instead, through Dec. 28, spot gold had a mean price of around $600 an ounce.
asked a sample of experts how readers might best position their gold investments during the coming year based on their forecast. Each will be periodically revisited to see how the different scenarios are playing out.
Well-known gold bug James Turk sees an average price of $725 next year with a low of $600 and a top of at least $1,000. "The key here is that not that gold is going up, it's that the dollar is going down," says Turk, who explains that the budget and trade deficits will weigh heavily on the greenback.
Look for a first-quarter spike to $850, he predicts, but he acknowledged that he expected a similar high this year that failed to materialize.
He recommends investors hold at least 10% of their assets in physical metal. Products like the bullion ETFs,
streetTracks Gold Shares
iShares Comex Gold Trust
, and mining stocks, aren't really the same as owning gold, but rather are "trading vehicles," he says.
Turk's company, GoldMoney, holds bullion for investors in segregated accounts in a London vault. He owns physical bullion, but neither ETF.
Frank Holmes, the chief investment officer at U.S. Global Investors and team leader managing the U.S. Global Investors World Precious Minerals Fund, sees a high of $720 to $800 next year for gold, but not before a first-half correction as the dollar stabilizes.
With low inflation, the dollar is yielding a good real rate of return, says Holmes. He sees price support for bullion at around $580 to $600, with an average price of $680 through the year.
Longer term, he says, diversification by central banks -- China and Russia in particular -- will provide solid demand, and strong jewelry buying should return as consumers become accustomed to current prices.
Holmes recommends buying in-the-money long-term options on
if the price pulls back. He warns investors to avoid the out-of-the-money LEAPS, saying they're too risky.
His other picks include miners
"Look for companies that have high return on capital," he says.
At the end of September, the World Precious Minerals Fund held stock of Northern Orion, Meridian and Rangold. A spokesman for the company wouldn't comment on the Newmont LEAPS.
Jeff Christian, managing director at New York-based specialty consulting firm CPM Group, says many investors see a world full of economic uncertainty, which will help boost gold prices to a peak of $750 during the first quarter.
Christian was the only person polled by
who also took part in the 2006 LBMA survey. Last year, he was the most bearish of the lot, with an average price forecast of $479. For 2007 he's clearly more bullish, at least for a while.
"There is a lot of concern that the dollar will just fall and fall and fall," says Christian. But "over the year that view will shift," with investors growing more sanguine, which should lower the risk premium for gold.
After a spring spike he sees prices for gold drifting down to $500 by year-end, with a full-year average of $600.
Clients should be "long commodities and
gold mining equities. Eventually, though, investors will want to rotate out of out of commodities while staying in the equities, adds Christian.
, which he owns, and
, which he does not.
Jamie Sokalsky, CFO of Barrick Gold, sees the price going through $730, but didn't want to specify further, although he's clearly bullish. In addition to a declining dollar, he sees the political "powder keg" in the Middle East and the added uncertainty of a nuclear North Korea supporting prices.
"If the U.S. pulls out
of Iraq there could be some additional conflict, and any uncertainty resulting from that could be positive for the gold price," says Sokalsky.
Pierre Lassonde, chairman of the World Gold Council and outgoing president of Newmont Mining, predicts a range of $600 to $800 for gold next year, with an average of around $675.
"I see the dollar continuing to go down against a basket of currencies, including the euro," says Lassonde, who adds that "80% of the value of gold is the dollar."
Other bullish factors include declining mine production and rising investment demand, says Lassonde. He notes the Gold Shares ETF now holds more than 450 tons of bullion, and he's looking for continued investor diversification into the yellow metal.
At the time of publication, Lassonde was long Newmont stock.
Neal Ryan, director of economic research at New Orleans-based coin dealer Blanchard, sees a high of about $825 to $850 an ounce for gold, a floor of $615 and an average price of $725.
The rally will be driven by Middle Eastern problems, as well as burgeoning inflation and a weak dollar. He recommends holding physical bullion rather than stocks.
"With stocks you have a proxy," for gold, says Ryan. "When you look at a mining stock vs. physical
metal, you have to look at a variety of other factors," such as costs, management and operational risk.
He advocates precious-metals holdings of no more than 5% for most investors.
Blanchard, which is currently long physical gold, trades bullion for its own account as well as for its clients.