By Kim Tae-gyu
Staff Reporter

Gold closed at $1,103.37 per ounce Tuesday, breaking through the $1,100 mark for the first time as the depreciating dollar continues to offer a tailwind for the precious material.

The dollar index (USDX), which tracks the value of the greenback against a basket of six other foreign currencies, tumbled to a 52-week low of 75.06 as investors sold off dollars to snap up more profitable assets.

Now the question is how far the gold price will shoot up in the future. Extreme projections keep sprouting up with some even predicting that the ceiling will be as high as $5,000 per ounce.

``On this planet, there exist two important currencies ― the dollar and gold. One is the key currency and the other is a prime material,'' said a Seoul analyst who declined to be named.

``The U.S. government keeps printing dollars of late, thus depreciating them. Then, the value of the gold will automatically rise, although nobody knows the upside limit.''

According to the analyst, a few market observers have predicted that gold would eventually trade in the neighborhood of $5,000 an ounce.

``Whenever the U.S. administration has carried out pump-priming measures, the value of the dollar has gone down while that of the gold has soared. Things are similar now,'' he said.
Gold appreciated rapidly in the 1970s amid stiff inflation after the world's largest economy conducted several stimulus packages in the 1960s.

The Obama administration, which was sworn in early this year, also attempted to boost the moribund economy with a set of fiscal and monetary policies to grapple with the global financial crisis.

Lawrence Kim, an economist at Woori Investment & Securities, concurs.

``As the U.S. is projected to keep the benchmark interest rate at zero for the time being, the dollar will remain weak. That means that gold will be strong,'' Kim said.

``We know there are many speculative demands for gold, which prop up the price too much. But even after excluding speculative demands, the upward trend of its value will continue.''

The USDX is a weighted geometric mean of the dollar's value against six currencies ― the euro, Japanese yen, the pound sterling, Canadian dollar, Swedish Krona and Swiss franc.

The USDX was introduced in 1973 with a starting value of 100. If the value is 125, this means the greenback added 25 percent to its value to that of 36 years ago. Along the same lines, 75 represents a 25-percent loss in value.

voc200@koreatimes.co.kr