Schroder Investment Management Says Gold to $5000 per Ounce. Is it Probable?

Another surprising announcement from a 'name' financial management firm that ought to be in a position to have an informed opinion arrived on the news. Yesterday both Morgan Stanley and the Royal Bank of Scotland forecast a meltdown in financial assets, and today Schroder Investment Management posits the shocking target of $5000 per ounce for gold.

Obviously we cannot address this type of a forecast, or even intelligently surmise if Schroder is basing this on a realistic extrapolation from the course of the financial crisis, or is just talking their book, in the same way some were forecasting Dow 36,000.

We do believe strongly that at some point the ratio between the Dow Jones Industrial Average and the price of gold in dollars/ounce will be "2" and perhaps closer to "1" but cannot say if this will occur at 2,000, 4,000 or 5,000.

What we are also convinced of is that at some point the train will leave the station, the boat will leave the dock, and if you are not on it before it leaves finding a place of any substance will not be easy, and may not even be possible for some time.

Consider the question, how many fiat currencies have lasted for more than 100 years before being replaced and devalued because of the ravages of inflation?

Let's hope we do not see this, as it will represent a significant deterioration in the purchasing power of the dollar and the pound and probably a few other currencies. But given the other forecasts of the past few days, and the outrageous actions of the Federal Reserve in corrupting their base assets, we are not as surprised or skeptical of this forecast as we might have been only a month or so ago.


Gold May Rise to $5,000 on Inflation, Schroder Says
By Bei Hu

June 19 (Bloomberg) -- Gold prices may rise to $5,000 an ounce as investors seek to protect themselves against accelerating inflation, said Schroder Investment Management Ltd., which oversees $277 billion of assets globally.

''You could easily see for the next several years that prices rise not to $1,000 an ounce, but prices rise to $5,000 an ounce or beyond as inflation psychology becomes more and more embedded and people become desperate to have a source of value,'' said Christopher Wyke, London-based emerging market debt and commodities product manager at Schroder, which oversees about $10 billion of commodity assets.

Investors are turning to gold for protection as two-thirds of the world's population cope with inflation rates that are climbing to more than 10 percent, Wyke said. Cash and inflation-linked bonds are poor substitutes as low interest rates, coupled with surging inflation, erode the real value of assets, he said.

Bullion for immediate delivery was down 0.2 percent at $892.48 an ounce at 9:57 a.m. in Singapore, after gaining 3 percent in the past four days. Wyke didn't give a time frame for his gold prediction.

Demand for gold will also rise as central banks become net buyers for the first time in 20 years, driven by developing countries, he added. Last year, world production of gold sank to the lowest since 1937 as reserves are depleted and few new sources of gold have been found.

New Fund

Wyke was speaking at a press conference in Hong Kong today to market the Schroder Alternative Solutions Gold and Metals Fund, the first commodity fund authorized for sale to individuals in the city that invests primarily in derivatives, including futures, warrants, swaps and options. Robert Howell and Paula Bujia will manage the fund.

Gold may account for about 40 percent of the fund's assets, based on a ''model'' fund used to simulate returns, said Wyke. The fund would also buy securities linked to metals including aluminum, copper, iron ore, zinc and uranium.

The limited amount of gold available, relative to the size of the global capital markets, means a small shift in investments may lead to significant price changes for the metal, Wyke said. Total gold above ground is worth about $4.8 trillion, compared with global stock and bond markets worth $135.2 trillion.

UBS AG, Hang Seng Bank Ltd., KBC Groep NV and Lehman Brothers Holdings Inc. are among firms that manage commodity funds in the city, according to the Hong Kong Securities and Futures Commission. Bank of East Asia Ltd. in February started a fund that buys shares of companies that produce materials and energy.