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Commodity expert says gold prices 'will hit $1,500 per oz'

Merrill Lynch commodity expert Francisco Blanch has claimed that he believes that gold prices can reach $1,500 per ounce due to the current economic turmoil gripping the globe.

He explained that although gold has taken something of a battering since passing the $1,000 per ounce mark in March ahead of the collapse of Bear Stearns, it can still eclipse that figure.

The main reasons for his bullish outlook are that gold is starting to reflect the rising risk premia, the impending weakness of the US dollar and the driving forces of recovering energy prices.

In a report to the bank's clients, he wrote: "In our view, gold will develop a stronger trading link to the currency world as risk premia on money stabilise.

"Then, as the US has taken on too much debt relative to its output, the dollar will likely weaken to reflect the excess level of consumption relative to domestic output.

"In particular, if the US fails to keep foreign capital interested in financing its twin deficits, the dollar could spiral down, providing strong support to commodity prices."

This, he continued, combined with oil prices surpassing $150 per barrel, could see gold break the $1,200 per ounce barrier initially, before hitting $1,500 per ounce in the longer term.

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