GFMS sees gold hitting $850 on US correctionhttps://www.businessday.co.za/articles/companies.aspx?ID=BD4A430698
05 April 2007
GFMS sees gold hitting $850 on US correction
Charlotte Mathews
Resources Editor
INDEPENDENT researchers GFMS expect the upward trend in the gold price evident since last year to continue into next year, says the GFMS Gold Survey 2007, released yesterday.
The survey was released as spot gold hit a five-week peak in Europe of $675,80/oz, partly reflecting a weaker dollar and partly technical factors.
GFMS chairman Philip Klapwijk said in the report the impetus for the price this year would come mainly from investment, as opposed to jewellery or electronic demand.
GFMS CEO Paul Walker said in a presentation in Johannesburg that the most disappointing aspect of the upturn was that small retail investors in coins had not appeared in the same way they did when gold peaked in the 1970s and 1980s. As long as retail investors stayed away, gold’s upside would be capped, but if they began buying the potential was $100-$200/oz higher.
Walker said GFMS expected to see the gold price exceed $700/oz in the next couple of months and a severe correction in the US economy could drive the price to $850/oz or higher.
Last year the volume of investment in gold fell but there was more buying and selling activity and the value of investment rose 18%. Most of the sales last year represented profit-taking or stop-loss selling after the price spiked in May.
The main reasons that investment demand was expected to continue were potential dollar weakness, a slowdown in the US economy, threat of higher inflation and geopolitical tensions.
Consumption of gold across the globe from the jewellery industry slumped to a 15-year low of 2 280 tons, GFMS said, reflecting the higher gold price and its volatility. This happened mainly in the first half of the year. The three countries in which jewellery demand slumped the most were India, Turkey and Italy. Jewellery demand was likely to contract further this year but not to the same extent as last year.
Last year’s higher gold prices, together with an increased supply of scrap gold, were the main reasons that fresh demand for gold across the Middle East declined, GFMS said.
Supplies of scrap gold, which refers to the melting down of old jewellery, rose 34% to 112 tons across the Middle East last year compared with the year before, especially in Turkey and Saudi Arabia. In the region, jewellery fabrication fell by 24%. If gold price volatility continued this year, jewellery fabrication in the Middle East could be expected to decline again, Klapwijk said.
Last year’s low sales by the signatories to the Central Bank Gold Agreement, which limits the amount of gold that these central banks can sell each year, was good for investor confidence, Klapwijk said.
The trend was expected to continue this year, which would underpin the market even if dollar-reserve countries such as China did not emerge as significant buyers of gold to diversify their reserves.
Global gold production fell 3% or 79 tons to a 10-year low, GFMS found. Most of the reduction was in Asia, while in Africa higher mine output from Ghana and Mali helped offset SA’s decline in production. In Latin America, new mines such as Veladero, Amapari, Mulatos and Gold Fields’ Choco 10 boosted output from the continent.
Global mine output was expected to rise by 1%-2% this year. Substantial de-hedging, or the unwinding of forward gold sales by producers, was a major feature last year and was expected to continue at a high level this year, GFMS said.