Gold May Top $1,000 in 3 Years, Morgan Stanley Says

Gold may climb above $1,000 an ounce in 2011 as global mine output drops, mining costs rise and demand increases, Morgan Stanley said.

“Mining production actually peaked in 2001 and has since been declining,” the bank’s commodity analyst Hussein Allidina said in an interview with Bloomberg television in Singapore. “When I look at the demand side, as income growth accelerates, the consumption of gold for jewelry purposes increases.”

Gold more than doubled in the past six years and reached a record $1,032.70 an ounce March 17 as the dollar slumped and oil advanced, increasing concern inflation would accelerate. In the past eight months, the precious metal plunged 31 percent as the dollar rallied, oil collapsed and the global credit crisis pushed the world toward a recession.

“The issue moving forward” now is deflation, said Allidina. “If you’ve got concerns about deflation you’ve lost that luster that gold has.” Gold for immediate delivery traded at $714.45 an ounce at 3:22 p.m. Singapore time today.

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Agriculture commodities will be the least affected by slowing global growth compared with industrial metals and energy, and corn and soybeans are “oversold by far,” he said.

“When you think about it from a layman’s perspective, if your income is curtailed maybe you forego the purchase of a condominium or a car, you don’t really change your food consumption,” Allidina said. “You still have population growth and that always works in the favor of corn and soybeans.”

Price Spikes

Corn has plunged 54 percent from a record $7.9925 June 27, and traded at $3.6675 a bushel at 3:23 p.m. Singapore time. Soybeans have tumbled 46 percent from their peak July 3 and traded at $8.8725 a bushel.

Allidina said while he is cautious on base metals, “you don’t necessarily want to short any of these” as supply disruptions would probably cause a rally in prices.

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