JOHANNESBURG (miningweekly.com) - Precious metals consultancy GFMS said on Wednesday, that the price of gold could still rise above the $1 300/oz mark in the second half of the year, driven by strong growth in investment demand.
The higher price would be aided by physical markets adjusting to higher price levels, as indicated by the rebound in fabrication demand and the drop in global scrap supply in the first half of the year, in spite of considerably higher average US dollar gold prices, said GFMS chairperson Philip Klapwijk.
However, the consultancy cautioned that there was still scope for downside over the next few months if investment demand temporarily faltered, although in the absence of a major change in the economic outlook, it was felt that gold would be "well supported" at prices between $1 150/oz and $1 200/oz.
The precious metal hit an all-time high of $1 265,30/oz on June 21, but was trading below $1 200/oz on Wednesday.
Klapwijk commented that even though progress to $1 300/oz was dependent on even higher inflows from investors, economic conditions still seemed to favour such growth in investment over the balance of the year and would probably continue to do so well into 2011.
However, Sydney-based Resource Capital Research was "moderately bearish" on the gold outlook and said that the recent records were driven by the words "crisis" and "banks" associated with the European debt crisis.
"Take away the crisis mentality, and gold looked precarious," senior analyst Tony Parry said.
He predicted that the gold price was likely to trade below $1 200/oz for the remainder of the year.
Klapwijk also noted that it should be borne in mind that, especially with inflation low in all the major economies and given the tough fiscal measures now being introduced in many countries, any serious tightening of monetary policy in the US and Europe would quickly transform the outlook for investment and the gold price, even if that possibility currently appeared rather "remote".
He added that some of the major supply and demand trends were unfolding this year.
GFMS expected an increase in the supply of gold in 2010 owing to the International Monetary Fund programme boosting overall official gold sales and further growth in mine production, which together would offset a marginal drop in global scrap supply.
"On the demand side, fabrication demand, which is dominated by jewellery, is forecast to recover some of the ground lost in 2009, although year-on-year growth is expected to slow in the second half of 2010 owing to higher gold prices."
Klapwijk said that the market would, therefore, remain in a substantial surplus in 2010.
"With limited scope for dehedging by producers, the gap between supply and demand will have to be filled by investors, who so far this year have considerably increased their holdings of gold in the form of exchange-traded funds and physical bullion."
The consultancy expected investment demand in the second half of 2010 to be volatile, but overall to remain on a positive trend, owing to ongoing concerns about the long-run value of major currencies, particularly in the light of continued ultralow short-term interest rates and the increase in government debt levels.
GFMS launched its fourteenth Chinese language version of its yearly ‘Gold Survey' at an event in Beijing on Wednesday, which was co-hosted by China National Gold Group Corporation, the Shanghai Gold Exchange and the World Gold Council.