The yellow metal could move in two diverging paths in the future, an independent global metals research consultancy firm said.
Weakness of the dollar and disappointment over conventional assets in the developed world may support gold well over $1,000 an ounce (oz), while the recent spike in its price could readily unwind in the absence of strong economic support, the latest report by GFMS Ltd (formerly Gold Fields Mineral Services) said.
The report assumes significance as global economic fundamentals have become more volatile than ever.
Gold, which moves inversely to the dollar, is now more dependent on the greenback, so much so that it follows the currency’s movement.
However, Citigroup has forecast that the gold prices will average up to $940 an ounce this year, up from a previous forecast of $908, and $966 in 2010, up from $925 after setting the new record of $2000 an oz by the end of 2009.
GFMS Chairman Philip Klapwijk, while releasing the report in London on Monday said, “It is far from guaranteed that the bull run in gold prices will continue.”
The report said that the reversal in trend was less likely to continue after the various monetary and fiscal stimulus programmes failed to rejuvenate the world economy, feeding a disinflationary condition. It was expected that its impact on gold would, in turn, be magnified by investors seeking out the security of US Treasuries, which would act to boost the value of the US dollar.
Using gold as a hedge
In the wake of the collapse of Lehman Brothers and other financial institutions, people chose to park some of their capital in gold because it has no counterparty risk.
In the first quarter, jewellery fabrication collapsed and was overtaken in scale by scrap, which boomed to almost the same size as mine production because of two main factors: The onset of a global recession and currency weakness in various consuming countries translating into record local gold prices. As seen during early this year, leading consumers like India, Turkey and Italy had become net bullion exporters which indicated that the rally would soon grind to a halt and probably go into reverse.
Jayant Manglik, head-commodities of Religare Commodities, said gold’s future movement would be decided by the release of physical gold into the market and dollar’s further direction.
Mine supply
Mine supply in the first half of 2009 increased by 7 per cent year-on-year. The growth was mainly driven by a rise in output from established operations in Indonesia, China and Russia, and supported by the onset of a raft of new projects, predominantly in Australia and Canada.
Net official sector sales in the first half contracted sharply, by almost 75 per cent year-on-year to total around 40 tonnes. The acute fall was mostly attributable to lower disposals from the Central Bank Gold Agreement signatories, as well as modest net purchases from countries outside of the agreement.
