Gold to Gain Through 2012, Morgan Stanley Forecasts

By Glenys Sim

Jan. 21 (Bloomberg) -- Gold may average higher for each of the next three years and climb to a record driven by increased demand and a declining dollar as governments ramp up spending to battle the global recession, according to Morgan Stanley.

The metal may average $900 an ounce this year, up 20 percent from an earlier target of $750, the bank said today in a report. It may average $1,000 in 2010, $1,050 in 2011 and $1,075 in 2012, up as much as 34 percent from previous estimates, the report said. The commodity peaked at $1,032.70 on March 17.

Morgan Stanley joins Standard Chartered Plc in raising its target for gold prices amid concern that the dollar may drop as the supply of the currency is increased. President Barack Obama, sworn in yesterday, plans an $850 billion stimulus on top of a $700 billion bank-bailout package enacted under his predecessor.

“Devalued currencies, growing global incomes and a renewed appreciation for gold should keep prices higher,” Morgan Stanley’s New York-based analyst Hussein Allidina wrote. “A globally synchronous and aggressive fiscal and monetary stimulus may be needed to re-inflate the global economy, and we think this continues to present significant upside to gold prices.”

The International Monetary Fund has forecast that advanced economies including the U.S. will contract simultaneously this year for the first time since World War II, spurring stimulus plans backed by more state debt. Gold, regarded by some investors as a safe-haven asset, can rise when the dollar falls.

‘Weaker Dollar’

“Gold will remain relatively stable in the first half of the year, then later, a weaker dollar, pickup in inflation and flight to safety will help gold test its record high again,” said Chen Yonglin, an analyst at Citic Securities Co.

Gold climbed for an eighth year in 2008, gaining 5.8 percent “in a year when most other asset classes saw double- digit losses,” Morgan Stanley’s Allidina wrote. “The U.S. dollar should weaken as the global economy recovers.”

The metal for immediate delivery traded at $851.35 an ounce at 2:37 p.m. in Singapore, and has averaged $846.18 an ounce this year.

Standard Chartered said in a report e-mailed Jan. 15 that gold may average $971 an ounce in 2009, up 11 percent from the bank’s previous forecast. A weaker dollar, lower supply of the metal and safe-haven buying by investors should drive gold to more than $1,000 an ounce in the second half of this year, according to StanChart analysts led by Helen Henton.

Jim Rogers, the chairman of Rogers Holdings who correctly predicted in April 2006 that gold would reach $1,000 an ounce, said last month that he planned to buy more of the metal, adding that the price “will go much higher.”

Platinum may average $875 in 2009, $1,000 in 2010, $1,050 in 2011, and $1,150 in 2012, down as much as 42 percent from previous estimates, according to Morgan Stanley. Palladium may average $180 in 2009, $200 in 2010, $220 in 2011 and $240 in 2012, down as much as 39 percent from earlier calls, it said.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net