GFMS study predicts rally in gold

GFMS said it expected gold prices to rise in the first half of 2004, perhaps surpassing $450. As a result, global jewellery demand was likely to fall by 9 per cent led by slump in India.

GFMS said in its 'Gold Survey 2003 - Update 2' released today at Toronto that possibility of a correction prior to such a peak was not entirely ruled out but this was expected to be brief and limited in scale. A first half average price of $437 was likely.

Bruce Alway, GFMS' mine production and hedging specialist, said he expected out growing dependence over coming months on investment to sustain prices.

"We may well see a pick-up in producer de-hedging compared to the quiet end to last year. But it looks highly unlikely we'll return to the bumper levels seen early last year, let alone the record volumes seen in the second half of 2002," he added.

Alway, speaking about hedging, said, "The majors seem as hostile to this as ever. It's merely a function of many of them having already restructured their books and higher prices."

Philip Klapwijk, managing director of GFMS, noted, "Last year saw a lot of hot money flow into gold, mainly as speculators saw some good opportunities with a war in Iraq and a dollar heading south. But what may be more interesting this year is whether gold can generate stronger interest from longer term players with larger sums to invest.Alternative investments certainly remain in vogue and we think gold will pick up from these portfolio diversification moves."

The consultancy saw little support for prices from jewellery fabrication demand. Not only was it estimated to have fallen in 2003 but it is forecast to drop by not that far off 10 per cent in the first half of 2004.

The remaining components of gold's supply and demand fundamentals were seen as having had a lesser role behind last year's rally though the modest rise in official sector sales and larger increase in scrap were seen as having restrained the price move.

For the first half of 2004, the contribution from these two, however, was viewed as more positive with central bank sales forecast to fall and scrap not expected to rise.