Gold to remain expensive for rest of the year

Gold price, which hit $700 an ounce last week much ahead of projections, is now likely to remain at higher levels during the second half of the current calendar year to close at an average $690 an oz, global precious metals consultancy GFMS said in a seminar in London today.

"We may not be completely out the woods as regards speculator sell-offs to raise cash or reduce leverage in our new world of subprime jitters, but the norm of safe-haven buying should dominate investor activity from now on,"  Philip Klapwijk, executive chairman, GFMS, said while announcing the second fortnight estimates.

The buy-side interest was expected to be chiefly driven by 'traditional'
factors such as an anticipated fall in the value of the US dollar, lower
economic growth and therefore, equity values (particularly in the United
States) and the possibility of cuts in interest rates, again mainly in the
US in an attempt to stall recession.

A rally was thought possible without the aid of political developments, though it was added that prices should strengthen further "particularly if Middle East tensions escalate sharply".

Although, the short-term liquidation is likely to continue there was
scant evidence of any longer term investors losing confidence and
instituting strategic shorts - a factor which they feel is crucial to the
solidity of values moving forward.

Gold fabrication demand is also forecast to rise in the second half but this
was not expected to actively support any rally due to its price sensitive
nature though it should provide good bedrock support to prices. The buoyant response of jewellery offtake in the first half, after all, is estimated to compensate the investor sell-off in the second half to boost the consumer confidence towards this safe heaven investment avenue.

In the second half of the current year, the consultancy firm estimates a
marginal fall in production but the overall production is forecast to remain
high. Mine production of gold in the first half grew by 3% to 1,201
tonne. The largest increases came from Asia with Indonesian output growing over 80% and Chinese production gaining nearly 20 tonne. In
contrast, Peruvian output fell by 24 tonne while the South African
figure was down some 7%.