Investors Set to Pile Into Gold!!!Investors 'to pile into gold'
19/01/2007 07:18
Johannesburg - GFMS, the metals consultancy, says investors will drive gold through $670/oz in the first half of 2007 as they pile into the yellow metal.
"We should be seeing prices getting in the $670s in the first half, although it is less certain we will see the recent high of $725 surpassed," said chief executive, Paul Walker, in Toronto at the release of the second update to the consultancy's Gold Survey 2006 report.
Walker adds that the 25-year high achieved in the second quarter last year could still be surpassed further into the year, or possibly in 2008, "especially if the situation in the Middle East deteriorates significantly, driving oil prices higher".
In the first update to its survey released in September, GFMS had forecast that the multi-year high would have been breached in Q4 2006. GFMS points out that heightened investor activity was concentrated in the first half of the year, with the second six months being comparably quiet.
"We're fully expecting investor buying to come back in force, mainly in response to actual and potential dollar weakness," said Walker in a release. "A slowdown in the US economy and disappointing returns in conventional assets, such as equities, should also lift gold."
GFMS goes on to say that the yellow metal's main supply and demand fundamentals will support price falls.
In 2006, demand from the jewellery industry, gold's largest consumer, dropped by over 400 tons, as price volatility in the first half kept buyers away.
"Looking firstly at jewellery demand, the consultancy noted that this proved very weak in the first half of 2006, chiefly as a result of the second quarter price spike, but came back fairly confidently in the second half as pent up off-take responded well to lower volatility, with buyers emerging on any price dip."
Walker says that gold's recent resilience to hold above the $600/oz level, while the dollar strengthened and oil prices plummeted, could largely be attributed to physical buyers.
Another two price supporters according to GFMS are lower central bank sales and the introduction of less scrap to the market in 2007.
GFMS estimates that central bank sales halved in 2006 and are expected to remain subdued as European Central Banks undersell their 500 ton per year quota and potential purchases outside of Europe.
"Although the latter do not as yet include any expectations of purchases by the dollar-rich East Asians," says the release.
GFMS expects supply from old scrap to fall by around a fifth in the first half of 2007, after having risen by a similar amount over 2006.
"Much of the loosely held jewellery was shaken out during the April/May price spike last year and people have come to see $600-$650 as quite ordinary levels," says Walker. Notably, Indian scrap supply actually fell in 2006.
Two potential negatives for a higher gold price, according to GFMS, were mine output and producer de-hedging. The consultancy expects mine production to rise modestly in 2007, following a 2% fall to 2 467 tons in 2006, which was price supportive.
In 2006 a large de-hedging program from the world's largest producer Barrick gold saw a provisional total of 400 tons being de-hedged.
This year the rate is expected to return to slightly under 200 tons.