Gold rush to hit $500 an ounce

GOLD could soar to a 20-year high this year in a sign that investors are becoming increasingly jittery about equity and currency markets.

Industry experts GFMS claimed the precious metal's image as a safe investment haven could push the price per troy ounce to $500, a 25% premium on its current price.

Investors tend to pour into gold when they are nervous about the stock market and currencies. The dollar has performed badly over the past 12 months, pushing the demand up for gold. In turn, shares in many UK-listed gold mining companies have rallied as investors favourably view their potential earning power.

Gold hit a 16-year high in December as it touched $450 a barrel, but has dropped back slightly since.

GFMS chairman Philip Klapwijk said the widening trade gap in the US, weak currency and slowing economy was driving gold demand. 'Ally that with an event-driven rally in the oil price, then gold heading for the $500 mark no longer looks fanciful,' he said.

The consultancy said world gold investment, which fell in 2004 to less than 300 tonnes, was set to surge again after recovering strongly in the second half of last year. It expected a positive investment climate to persist in 2005, with fund flows into commodities likely to lift gold.

Global mine output, which fell 5% in 2004 to an eight-year low of 2,464 tonnes, is expected to recover 4% in 2005 to 2,570 tonnes.

Gold mining stocks have performed well in recent months on the back of the rising price of the metal, with smaller stocks performing particularly well. Beowulf Gold has doubled to 10p from November, while Griffin Mining has jumped from 23p to 31¾p over the same six-month period.

The gold rush follows a prolonged period of weak demand for much as the past 20 years. It was largely ignored during the Nineties as global stock markets performed strongly, hitting a 25-year low of $255 in 2001.

The upbeat assessment from GFMS came with one caveat - Klapwijk warned a strengthened dollar could potentially see the gold price drop back below the $400 level.