Gold prices were likely to touch $1,300 an ounce before the end of this calendar year, said Philip Klapwijk, the chairman of GFMS, the London-based independent metals research consultancy. He was speaking at the launch of the year’s first update of Gold Survey 2010 in London on Monday.
Profit-booking pulled the yellow metal back to $1,250 an oz on Tusday after hitting an all-time high of $1,264 last week.
It’s hard to see how price gains can be sustainable when major processors of gold into jewellery like India and Turkey are net exporters of bullion, the position the sector was in early last year. However, in the calendar year till date, Indian offtake has jumped by around 170 tonnes compared to the same period last year, showing that investment has a firmer base to build on, says GFMS.
Another factor GFMS sees as significant to the rally is the shift in the official sector to net purchasing in the first half, a development chiefly attributable to the collapse in selling by signatories to the Central Bank Gold Agreement.
The material contribution from central banks’ net buying of around 90 tonnes in the first half was useful. But arguably of more importance was the broader shift in sentiment — investors, for instance, could be more confident of solid price gains knowing central banks were, in a sense, on their side, said GFMS.
Klapwijk reiterated that rising investment demand would continue to prove that gold was a safe-haven investment during economic crisis. The ability of the gold price to manage record highs this year was to a large extent due to the firmer footing of falling scrap and recovering jewellery demand, he said.
“Investment demand was the prime driver of the rally during the first half of the year to record highs. The metal certainly lived up to its reputation as a safe haven in troubled times. Just look at the explosion in investor interest that followed the sovereign debt crisis unfurling in Europe. And, it came as little surprise that we saw this interest strongest in arenas with a clear physical link, such as the ETFs (exchange-traded funds), or in regions with memories of currency shock, such as the German-speaking Europe,” Klapwijk said.
Murky world outlook
Other factors cited in explaining investor interest included a shaky outlook for the industrialised world’s economies, low interest rates and the still feared threat of inflation. One traditional driver of gold strength, US dollar weakness, proved conspicuously contrary, as that currency also benefited from a flight to quality and so frequently strengthened in line with gold.
GFMS feels the key to the ongoing price strength is the extraordinary monetary and fiscal policies being enacted by the industrialised world’s governments in the face of sluggish economic growth, the spectre of a double-dip recession and already uncomfortably high unemployment.
