Gold prices dip

NEW YORK – A wavering dollar sent gold prices falling slightly Wednesday even though a pair of analysts raised their forecasts for the metal. Energy and agriculture futures were buoyed by gains on Wall Street.

Analysts at Morgan Stanley and UBS said Wednesday they expect gold prices to trade higher in 2009, benefiting from some safe-haven buying as well as long-term concerns about inflation.
Gold, which is often used as a hedge against a weak greenback, has traded within a fairly tight range of between US$800 and US$890 since the start of this year as investors wrestle with the short-term versus long-term prospects for the metal. While investors are fearful that a prolonged recession will curb demand and weigh on commodities prices in the near future, there is also some concern that the government’s recent efforts to prop up banks and pump money into the system will weaken the dollar over time, potentially sparking inflation. ‘Near-term, a stronger US dollar, weaker economic growth and deflation fears could contain the gold story,’ wrote Morgan Stanley analyst Mark Liinamaa in a research note. ‘However, we believe longer-term concerns of devalued currencies and inflation risks will prove investable themes favouring gold.’ Liinamaa said he expects gold to hit US$900 an ounce this year, and US$1 000 in 2010. Likewise, UBS analyst John Reade raised his short-term forecast for gold to US$900 an ounce from US$800 an ounce. ‘For the moment, there is this continuing tug of war of, ‘Will inflation take hold?’’ said Jon Nadler, senior analyst with Kitco Bullion Dealers Montreal. But for the time being, the dollar is likely to remain somewhat stable as currencies overseas weaken, he said. ‘The pound looks really sick,’ Nadler said. ‘(Europe is) just now experiencing sort of what we went through a year ago in the States. … We’ve got a dollar that is looking pretty resilient all in all.’ On Wednesday, the British pound fell to a nearly 25-year low against the dollar amid mounting fears about the British banking sector and expectations the Bank of England will start pumping money into the economy within weeks. The Royal Bank of Scotland, a large UK bank, alarmed investors around the world this week by warning its 2008 loss might top US$41 billion. That prompted the British government to announce a fresh round of bailouts for the banking industry. The dollar later lost some ground against the pound and the euro. After fluctuating throughout most of the session, gold for February delivery finished down US$5,10 to settle at US$850,10 an ounce on the New York Mercantile Exchange. -Nampa-AP