Precious metals consultancy GFMS forecasts in the second update of its ‘Gold Survey 2008’, published in January 2009, that the gold price could achieve an all-time high in 2009 as net investment surges.

The report states that there have already been several months of increasing demand from certain investors, mainly in Europe and North America, but it has been masked by heavy fund redemptions as cash has been sought to cover losses elsewhere.

GFMS CEO Paul Walker says that the consultancy’s view is that gold is the obvious alternative for people searching for wealth preservation, who are avoiding the stock markets and are unsure of which currency to hold their wealth in. He says that this view is likely to remain throughout 2009 and that quite possibly under those circumstances, there may be a new wave of investment in gold.

He says that in 2009 investment into gold will not be compensated by the deleve- raging and cash moving out of hedge funds seen in the second half of 2008. Walker says that GFMS feels that 2009 will be more of a “pure gold play”, which could take gold to the $1 100/oz to $1 200/oz range.

Walker says that GFMS also sees gold as benefiting from global concerns over the stability of other assets.

“Gold has been the main asset of the past seven to eight months. If you look at gold against any other asset class, it has performed remarkably well,” says Walker.

He comments that gold in the UK in sterling terms has gone up about 30% in value over the past three or four months. He says that as part of a balanced portfolio, gold has performed well and, most importantly, GFMS believes that gold will perform well in all currencies, not specifically dollar-dominated gold.

The report states that gold’s fundamentals will remain relatively neutral in the near term, with the damage from weak demand being largely neutralised by restrained supply. It predicts that the signa- tories to the Central Bank Gold Agreement (CBGA) will dominate gold selling, and that buying by banks outside this group will remain limited.

The report forecasts that output in the first half of 2009 will increase slightly compared with the weak first half of 2008. Producers’ total cash costs rose by 22% year-on-year to an average over $470/oz for the nine months to the end of September.

In the first half of 2009, GFMS forecasts that total net sales will fall further year-on-year. It notes also that the addition of production from new projects is likely to provide a temporary increase in supply.

GFMS estimates that jewellery fabrication will decline by 11% in the first six months of 2009, especially in developing countries, mainly owing to high and volatile prices and the economic recession.

The consultancy forecasts that fabrication will fall in the first half of 2009 as economic slowness and gold price strength hit all areas, except coins.

The report states that the need to cover losses elsewhere and other financial factors are forecast to drive the implied figure higher in the first half of 2009 to almost 400 t. Gold bar hoarding also grew strongly in 2008, thanks to a healthy second half, and GFMS says that further year-on-year gains are forecast in the first half of 2009.

Dehedging in the first half of 2009 is forecast to fall heavily, primarily on account of the much smaller outstanding book.

GFMS’s executive chairperson Philip Klapwijk noted at the presentation of the report that the consultancy expects that the CBGA signatories will continue to undersell their quota in 2009. He said that this, together with a broadly neutral impact from countries outside the CBGA, leads the consultancy to forecast that net sales in the first half of 2009 will be subdued.

The report states that, based on these assumptions, the consultancy is projecting a 23% year-on-year decline in the net official sector supply, to reach a total of 127 t in the first half.

Walker explains: “GFMS has been of the view for the past three to four years that there was an unsustainable economic growth path.”

He says that the consultancy has always believed that there were some unsustainable issues in the global economy and that there was a strong economic case for gold prices to move to a higher hedge against other uncertain assets. He says that this has increased with the banking crisis, but the gold price can also increase as a hedge against the economic realities on the ground.

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