Renewed investment to propel gold to $1,800/oz before year-end
4th September 2012
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JOHANNESBURG ( – The gold price is expected to clear the $1 800/oz mark before year-end, as global investment in the second half of the year would reach a record of over 970 t, or about $53-billion. But the price of the precious metal is unlikely to surpass 2011’s highs of over $1 900/oz.

This is according to precious metals consultancy Thomson Reuters GFMS, which published its 'Gold Survey 2012 - Update 1' on Tuesday.

In its April update, GFMS forecast a push towards $2 000/oz before the end of the year, although it said at the time that a clear breach of that market was more likely in 2013.

Gold hovered at $1 692/oz on Tuesday, back from levels as low as $1 540/oz in late May.

“I think we are on pretty safe ground saying that we have already seen the lows for the year and that firmer prices, particularly towards year-end, are on the cards, but we are also expecting a bumpy ride looking ahead; any intensification of the eurozone crisis or dashing of hopes for further easing by the Fed [Federal Reserve] and you could easily see the rally derailed for a while,” GFMS global head of metals analytics Philip Klapwijk commented.

GFMS believed that gold prices would be strongly influenced by governments’ monetary and fiscal policies, particularly those enacted by the US administration.

“We have recently seen how gold can react sharply to any prospect of more quantitative easing in the US and we are fairly confident that some form of easing is more likely than not, in the end; we may have seen periodic items of good news on the US economy, but that invariably seems followed by bad, and this is all before a probable slowdown in both European and Chinese economic growth. Neither can we ignore its domestic problem of the fiscal cliff, with all the uncertainty and recessionary potential bound up in that,” Klapwijk said.

The consultancy also noted that looser monetary policy was to be expected in the developed world and in emerging markets, such as China, which would undermine faith in currencies, in particular the US dollar, stoke inflationary fears and lead to an extended period of ultra-low interest rates.

One development that lifted investor sentiment was further growth in already elevated levels of official-sector buying to an estimated first half 2012 figure of over 270 t, mainly as a result of an ongoing desire to diversify foreign reserves away from the US dollar.

The consultancy also noted that this buying had been focused on price dips, providing clear support to the market over difficult times.

Even though such opportunistic buying could reduce somewhat in the second half of the year, should the price rally strongly, GFMS still expected an historically high net purchase figure of 220 t and cautioned that this figure could easily prove conservative.

GFMS reported that jewellery fabrication in the first half fell by almost 13%, on account of a poor result in India, where offtake dropped in the face of record local prices, a lack of conviction in future price trends and a slowing economy.

Global jewellery demand was expected to grow modestly in the second half of the year, even in the event of a price rally, which could bring investment-related buying back to life.

GFMS expressed concern about sluggish Indian buying and noted that Chinese offtake was also not as robust as before.

Meanwhile, if fabrication demand underwhelmed, scrap supply was not likely to rule out any price rally, with second-half volumes forecast effectively unchanged year-on-year.

GFMS attributed this chiefly to price accustomisation, a belief among some holders of scrap that yet higher prices were imminent and a decline in near-market stocks.

Other aspects of supply were also not thought obstructive. Mine production was forecast to increase in the second half by 24 t and GFMS’ estimation of full-year output was lower than expected, mainly as guidance on a slew of projects had been marked down.

Also of significance was the ongoing absence of producer hedging. Update 1 forecast a modest 12 t of net dehedging to remain on the demand side in the second half, which illustrated the extent to which equity investors continued to militate against such activities.

Edited by: Mariaan Webb