American Bullion -- DJ - Midas Fund Manager Envisions $1,400 Gold By Year-End

Wednesday, March 17, 2010 at 06:00am

By Allen Sykora Of DOW JONES NEWSWIRES Gold prices could hit $1,200 an ounce again in the second quarter and $1,400 by the end of the year, said Thomas B. Winmill, portfolio manager of the Midas Fund in a quarterly conference call with investors Thursday. The $119 million fund invests in securities of companies in the production, processing, fabrication and distribution of natural resources, including gold, silver and others.

Morningstar reports that the fund has a gain of 0.26% for the year to date, with gold prices also roughly flat so far in 2010. Midas had anticipated a return to $1,200 gold in the current quarter after the metal hit that level for the first time ever in late 2009. "Maybe we were a little aggressive in our call," Winmill said, noting gold is only slightly above $1,100 with around three weeks left in the quarter.

However, he said, "We think $1,200 is very likely for the next quarter, rising to $1,400 by 2010 year-end." The outlook has been helped by more central-bank buying and less central-bank selling in recent quarters, he said. Meanwhile, Indian jewelry manufacturers have returned to the market after a recent stabilization in prices. The biggest factors likely to drive gold higher are fiscal issues, such the huge budget deficits in the U.S., and continuing low interest rates, with the U.S.

federal-funds rate near zero, Winmill said. This is likely to pressure the dollar and help fuel inflation, he said. Investors tend to buy gold as a hedge against both.

Fiscal-stimulus efforts around the world mean broad-based currency devaluations and inflation, increasing gold's status as a reserve and investment asset, he said. But while bullish on gold, Winmill referred to platinum as "probably our preferred metal." In particular, he cited the advent of a platinum-based exchange-traded fund, ETFS Physical Platinum Shares (PPLT), in the U.S. at the beginning of the year.

As with other precious-metals ETFs around the world, investors buy ETF shares that trade like a stock but track the price of a metal. Platinum is put into storage to back the ETF shares, creating actual physical demand. "From starting at zero in early January, it now has about 290,000 ounces in there," Winmill said.

"That is about 5% of [annual] mined supply." This kind of volume can become "influential" in driving the price of the commodity, especially since the supply/demand picture has been stable, he said. Furthermore, the auto industry, which uses the metal for catalytic converters, is expected to use more platinum as it recovers. Meanwhile, Winmill said, many new South African mines are not economical at current platinum prices due to their depth underground and rising labor and electricity prices.

The cost for most companies is probably around $1,700 to $2,000 an ounce, he said. The most-active April platinum contract settled Thursday at $1,612.70 an ounce on the New York Mercantile Exchange. Winmill characterized uranium as "our least favorite" metal due to a "major supply glut." -By Allen Sykora, Dow Jones Newswires; 541-318-8765; allen.sykora@dowjones.com (END) Dow Jones Newswires March 11, 2010 16:33 ET (21:33 GMT)