February 23, 2009 / 6:17 PM / 8 years ago

Gold to keep rising, base metals to lag - BMO

(In U.S. dollars, unless noted)

TORONTO, Feb 23 (Reuters) - Gold's seven-year bull run should continue for at least three more years, although the precious metal could suffer small pullback in the near future, BMO Capital Markets analyst Bart Melek said in a presentation on Monday.

Speaking at an investor conference in Florida, Melek was less rosy in his expectations for base metals, which he expects will remain under pressure, although he saw reasons for optimism in the longer term.

Gold for April delivery GCJ9 was at $996 an ounce on Monday, after topping $1,000 late last week, a level that brought it close to its record high of $1,030.80, reached last March.

"We have every reason to believe this bull market in gold will continue for some time," Melek said, pointing to a continuation of the "flight to quality" that has drawn investors to gold from weak stocks and low-yielding debt investments.

"They see banks possibly faltering; they see huge potential for inflation around the world," he said.

However, Melek said he wouldn't be surprised to see a short-term retreat from the $1,000 level, as gold typically moves in opposition to the U.S. dollar, a trend that has decoupled of late as the greenback has been strong amid the financial turmoil as a safe-haven currency.

He expects the U.S. dollar to stay strong in the immediate future, in part because U.S. central bank rates are already as low as they can go, while other central banks will likely do more cutting, which would weigh on their currencies.

"Usually these decouplings don't last long," he said.

Melek's comments were part of an update to a commodity outlook issued earlier this month.

GLOOMY BASE METALS

While gold should continue to shine, Melek says base metal prices will likely stay under pressure, following a collapse in demand as several countries fall into recession.

Metals such as copper, zinc, nickel, and aluminum have lost more than half of their value over the past year and will not likely see a strong rebound until credit markets loosen and global growth rebounds, Melek said.

However, he said the recent sharp selloff has left prices "too low" and said the long-term prospects were strong.

"We don't expect a big turnaround this year at all, but we do see that the expectations of a turnaround are starting to look better," he said, pointing to government efforts in countries like the United States and China to spur growth and liquidity, and to fund infrastructure spending.

"All of those things will ultimately begin having an impact," he said. (Reporting by Cameron French; editing by Rob Wilson)

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