METALS

 It didn't take much to woo the price of precious old gold above the $1,000 an ounce marker after all. In fact on Tuesday morning when Americans returned to their desks after an extended holiday weekend, several factors were already making themselves very aware on traders' news screens.

The euro blew to its highest point in about 50 weeks trading above $1.45 before stocks opened. The dollar index fell beneath August support as investors found fewer reasons to hang onto dollars.

Both reasons were heartily inspired by a fresh report from investment banking heavyweight, Goldman Sachs whose metals team raised forecasts for industrial metals prices amid what they perceive as signs that currently idle resources are set to become gainfully employed as the global economy revives itself.

Goldman is most bullish on the price of copper, raising its end-2010 price forecast from $5,800 to $7,650 per ton. Car and pipe production reliant on copper have already doubled in 2009 as government stimulus takes a grip.

Excess supply of copper is expected to dwindle in 2009 to 187,000 tons after a 2008 surplus of 706,000 tons. With China's copper stockpile estimated to have risen to 590,000 tons in the first seven months of this year, Goldman predicts that by the end of next year, supply will be outstripped by demand to the tune of around 88,000 tons.

On Tuesday it was gold bullion that traded at $1,009.70 per ounce as investors shunned the dollar and got sucked in as the price crossed the key resistance point. That's just 3% short of the March 2008 peak at $1,033.90. Meanwhile silver prices also reached a 13-month high.

There are now two trains of thought on the potential from here for gold. Some believe the rally is overdue and is based largely on weakness in the government's fiscal stance. Inflation they say is directly ahead. Gold will trade through $1,200 per ounce before the end of this year.

Others, however, don't see any inflation building in the pipeline and say that current fears are merely large investors creating headlines and drawing unwitting investors into the fray in search of fast profits.

Who is correct? Who knows!

The gold rush in fear of inflation has hardly incited a similar exit from government bonds, which would arguably get run over by the proverbial steam train if fixed income investors were really concerned by inflation. Such investors probably believe that the Fed will be sufficiently fast-acting to withdraw monetary stimulus in a well-prepared exit strategy.

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