Gold could reach $1800 next year if the economic situation stays on track but an extended euro crisis could see the precious metal reach new heights, according to Threadneedle's commodities director David Donora (pictured).
High demand from the emerging markets and high net worth investors will continue into next year and drive the price of gold upward, he thinks. His bullish stance on the gold and precious metals market are present on both his commodities hedge fund and long-only fund, with Donora saying his current exposure to gold is his largest since March 2009 on his hedge fund.
'Without any major crisis I expect gold to reach between $1600-1800 in 2011, with a major crisis it is anybody's guess,' said Donora, who runs the Threadneedle Enhanced Commodities fund launched earlier this year. 'I don't see any immediate end to the instability in the EU nor do I expect the US to lower its currency and I see gold as being a beneficiary of this.'
Despite his positive outlook, he does believe bullion has been overbought at times and investor momentum drove the price up too quickly. When the gold price hit $1400 earlier this year, he said, it was overvalued by around $100 to $200 He also believes its rising price is spurred on by US investors' increasing eagerness to play the commodities market.
'Gold went ahead of itself in the short term, but for the first time since the 1970s US investors are investing around 5-10% of their portfolio either in precious metals or into commodities themselves.'
He described these investors as the last of the 'baby boom generation' and said they are looking for long-term investments to ensure their future. The result, he thinks, is that the gold which is being bought by this pool of investors is coming out of the market and is unlikely to return unless the dollar regains a lot of its credibility in the long term.
'It is being allocated, not lent, and it does not tend to return to the market.'
Next year will also prove to be a good year for many other precious metals, according to Donovan, saying that silver could experience more 'dramatic moves' than the gold market as it is a fraction of its size.
He also expects copper to reach between $8000-9000 per ton, calling it the 'darling of the commodities market', and the increase in price will be driven by the infrastructure sector in China and India which is starting to outstrip demand.
The platinum market will also 'strengthen significantly' with prices reaching up to $2500 by next year.
