Gold may gain over 23 per cent to achieve a fresh all-time high of $1,000 an oz in the first half of 2009 on surging net investment demand from retail investors, who are motivated to own the yellow metal because of fears following the string of bank failures and stresses in the broader global financial system, forecasts Gold Fields Mineral Services (GFMS), a London-based independent consultancy and research company.
The yellow metal, which is currently quoting at $812 an oz, hit the historic high of $1,011 an oz on March 17, 2008 on sustained safe-haven buying support from investors and consumers.
GFMS’ Executive Chairman Philip Klapwijk expects renewed price strength during this year on a combination of aggressive fiscal policy and historically low short-term interest rates in the US and other major economies.
Additionally, as foreign creditors grow increasingly alarmed over the burgeoning US fiscal deficit and the country’s monetisation of debt, there is a potential for official inflows into the US government debt market to weaken, an event that would substantially undercut support for the dollar. This, coupled with the ongoing environment of negative real interest rates should prove highly supportive of gold. Furthermore, as the global economic downturn continues to erode corporate earnings, interest in alternative assets may again be bolstered in the backdrop of deteriorating equity markets, the consultancy feels.
Once investors start redeeming their investments in other asset classes, chances are high that a large portion of the returns will come to gold. GFMS believes that this wave of new investments will possibly fuel the price rally.
A large section of investors, mainly in Europe and North America, has redeemed their other investments to cover losses elsewhere and meet margin calls.
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Gold’s fundamentals, though, remained relatively neutral in the near term with the damage from weak demand being largely neutralised by restrained supply. Used gold forecast for the first half of this year, for example, has been broadly flat year-on-year and official sector disposals are expected to fall.
The yellow metal’s selling will be dominated by the signatories to the Central Bank Gold Agreement (CBGA) and buying by banks outside this group will remain limited with no hint of any purchases by big dollar holders in East Asia. On the demand side, high and volatile prices coupled with the slowdown in the world gross domestic product (GDP) growth is expected to cut jewellery demand by 11 per cent to its lowest level since 1989.
| COSTLY GLITTER 2009 forecasts |
| * Fabrication may fall in the first half as economic sluggishness and gold price strength hits all areas except coins |
| * Risk aversion or wealth preservation purpose demand is forecast to drive the implied investment demand in H1, 2009 to almost 400 tonnes. |
| * Bar hoarding grew strongly in 2008 and further year-on-year gains are forecast in the first half of 2009. |
| * An 11 per cent year-on-year fall in jewellery fabrication is forecast to below 400 tonnes |
| * Sales under the second CBGA to come between 2,000 - 2,500 tonnes |
| * Net official sector supply to decline 23 per cent y-o-y to 127 tonnes in the first half |
| Gold prices are likely to average $875 and $1,100 an oz in 2009 and 2010 respectively on subdued jewellery demand because of depressed economic activity. Standard Chartered Bank |
| Average gold price may ease to $820 in 2009 from $870 last year. However, towards the end of 2010, the yellow metal may sink to $650 on rising dollar, falling crude oil and deflationaryfears. Barclays Capital |
| Gold may revert to $1,000 an oz in a few months because of the strong trading link to the currency world. As the US fiscal and trade deficits get unmanageable, a weaker dollar could help gold break through $1,200. Commtrendz Research |
However, non-jewellery fabrication rose by 2 per cent as a result of a 40 per cent rise in demand for official coins. Implied net investment grew by around 20 per cent to a little over 200 tonne in 2008.
“An 11 per cent drop may sound restrained to some but demand in the first half of last year was fairly feeble and the actual tonnage we are proposing for this year could easily be a 20-year low,” Klapwijk added. Gold prices are likely to average $875 and $1,100 an oz in 2009 and 2010 respectively on subdued jewellery demand because of depressed economic activity.