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FWIW

Mon November 17, 2003 08:08 PM ET

(Refiles story sent on Monday)
By Paul Caine

HONG KONG, Nov 17 (Reuters) - Gold is poised to break above $400 an ounce and strategists and fund managers say it could go higher still as investors look for a safe haven on expectations the dollar will weaken further.

Gold (XAU=: Quote, Profile, Research) has not hit the $400-an-ounce level since March 1996, but touched a fresh 7-½ year high at $399.50 in Monday trade on fears of further al Qaeda attacks before falling victim to profit-taking in the Asian afternoon.

Analysts say the primary driver of gold's rise has been expectations that the dollar will continue to fall.

"It's going to have a totally inverse relationship with the U.S. dollar," said Sean Darby, strategist at Nomura in Hong Kong.

Dollar weakness, along with building inflationary pressures in the global economy and"some fairly significant bubbles around the world in property prices and some equity markets," all created incentives to buy gold, said Darby.

Rising political risk premium and fears that the United States"war on terror" could backfire only adds to gold's lustre.

"Gold is regarded as a safe haven, and that's unlikely to change given the backdrop of pressures in the war against terrorism," said Darby.

Geoff Lewis, head of investment services at JF Asset Management in Hong Kong said that much of gold's appeal was simply due to the unattractiveness of the G3 currencies.

"A lot of people are tending to view gold as an alternative currency, or currency of choice, because you can look at the fundamentals of the yen, the euro and the dollar and say they're all equally bad -- they've all got problems," said Lewis.

A weaker U.S. currency makes dollar-priced gold cheaper for holders of other currencies.

Puru Saxena, president at Hong Kong-based independent investment consultants Bridgewater, said that they had been holding gold for the past two years.

"We think gold's rising because, number one, we think the U.S. dollar is in a severe bear market based on the twin deficits that the U.S. has built up," said Saxena."The trade deficit is about half a trillion dollars now per annum, the budget deficit is $500 billion and rising as well. So basically the U.S. is suffering from mountains of deficits and debt."

In that context, Saxena expects gold to continue to rise.

POTENTIAL TO RISE FURTHER

Short term he thinks it may peak at US$415 to US$420, but may then succumb to a correction. But long term, Saxena is extremely bullish.

"I think gold, at the moment, is the probably the cheapest asset money can buy," said Saxena.

Along with Marc Faber, author of The Gloom, Boom & Doom Report, and amongst the most notable of gold bulls, Saxena believes the yellow metal could even reach $1,000 an ounce.

"Gold in 1980 went up to $1,900 in today's dollars, and now we're at $400, so there's a long, long way to go on the upside," said Saxena."I think we are still very early in this young bull market and this could last for maybe the next five to 10 years."

But others are more sceptical.

Asset management consultant Stewart Aldcroft believes that although gold is on the rise, equity markets may offer better returns.

"Every time you see any strength in gold, you get all the bulls coming out of the closet and they start talking it up and up and up and then it collapses," said Aldcroft.