Dr. Ursula Oser

With the gold price above $405 an ounce, analysis of the outlook for gold is at a premium these days, and Dr. Oser's presentation was a top attraction at the 2nd Dubai City of Gold Conference.

She declined to make a firm prediction of the level the gold price might reach in its present rally, and told AME Info that solid predictions were impossible. In particular, action by the US Federal Reserve could upset upward predictions, according to the Credit Suisse Private Banking gold guru.

'From the late 1980s spike in the gold price to 2000 we saw a decline in the gold price. But since then there has been a revival of interest in gold, and the price today of over $400 is the highest in seven years. This reflects the low yields available in capital markets and the fear that monetary policy will lead to inflation.

'This is not the first rally in the gold price in the past 20 years. Gold rallied by 76% in 1985-86 and is up by 55% today. Inflation is the major factor that will show how far gold prices will rise further forward.'

Dr. Oser believes that in the short term US inflation is well under control but notes that inflation is a lagging factor. Thus the high 8.2% annualized growth in US GDP in Q3 suggests that the inflation rate will trend upwards later next year which is positive for the gold price.

'In the second half of 2004 and beyond we expect inflation to pick up and support the gold price,' she says. 'The other big factor is the weakening US dollar which will start to make US Treasuries look unattractive, and with more devaluation on the cards the gold price will rise.

'When Treasury yields are below 2% this tends to be supportive for gold, and although we expect yields to rise in 2004, we think they will remain supportive of the gold price.'

On the other hand, Dr. Oser does not see much correlation between stock market performance and the gold price and says that equities have less influence of the gold price than often thought.

A final factor determining the gold price is the level of central bank holdings. And Dr. Oser can see Asian central banks diversifying their asset holdings by buying gold at a time when Asian willingness to finance the US twin deficits is tested by US dollar devaluation.

In conclusion, gold is on a positive trend and the things to watch for are the US dollar, inflation, and Asian currency reserves and not the stock markets.

Dr. Oser adds, 'the $400 level is broken and $411 might be broken soon; the greatest risk to that forecast is a change in policy by the Federal Reserve.'