Base metal price to surpass gold on industrial demand

Base metals will have a stellar run in 2010, much as gold did last year, Westpac Banking Corporation director and senior international economist Huw McKay told a conference in Perth on Monday.

Aluminium would rise the most, followed by copper, nickel, lead and zinc, McKay said.

The gold price was unlikely to fall below $US1,000 per ounce and there was potential for a rise beyond the current $US1,100/oz level, he said.

"We see $US1,000 on the gold price as the rough floor," McKay said.

"The gold price is not going to do as well in relation to other commodities as it did in 2009.

"That doesn't mean the gold price is going down, it is just that the relativities to other commodities which are much more leveraged to the industrial cycle are going to start catching up.

"So gold is going to lose some relative ground ... there is some modest downside risk in the short term and then a very slow grind higher.

"We don't see immense upside in our formal forecasts but we acknowledge very much that it is there."

Newmont Asia Pacific regional group executive operations Philip Stephenson agreed.

"Our view is that we are cautiously optimistic that it (the gold price) will continue to migrate north but we may not see it rise quite as quickly as it has in recent years," Stephenson told reporters at the conference.

"Russia and India continue to buy and I don't see this changing in 2010," he said during a presentation.

"China's insatiable appetite for gold remains."

Stephenson also said there had been a move away from sovereign bonds into gold.

The gold price remained historically high despite the US dollar strengthening, which is the inverse to the usual dynamic, Stephenson said.

The US dollar's improvement reflected uncertainty surrounding European economies with investors piling out of the Euro and into the greenback, he said.

The gold price is usually high when the greenback is weak as the metal is seen as a safe haven investment.

"It will be interesting to see how long it is until it returns to its normal linkage," Stephenson said.

McKay said there had been a near three-fold increase in investment in gold via exchange traded funds between 2007 and 2009, but this growth would not be replicated this year.

"If you look at the ETF holdings, it has actually been quite level, so we're not seeing people leaving or entering in droves.

"It seems to be ... fairly static at the moment."

McKay also said the Australian dollar would eventually reach parity with the US dollar.

"I think the Australian dollar will perform very, very similarly to commodities: lots of volatility in the short term, periodic moves to the downside, but medium term, the trend is very positive."