Gold prices could reach $2,000 an ounce by the end of 2011 as investment demand continues to propel the market higher, said a London-based metals consultancy on Thursday.
Thomson Reuters GFMS said in its report titled Gold Survey 2011 Update 1 that the investment growth is expected to rise further in the second half of 2011, with investment demand of all types forecast to reach a record of just over 1,000 metric tons. Using an average price forecast of $1,815 an ounce, that means it would equate to a value of $60 billion, the consultancy said. In the first half of 2011, the group put investment demand at 624 tons, a value of $29 billion.
The consultancy does not expect the price rise to be a straight shot to $2,000, saying that prices could enter a soft patch before rising higher. Gold prices have risen over $1,900 on two occasions recently, but have struggled to maintain strength above that region.
Philip Klapwijk, global head of metals analysis at Thomson Reuters GFMS, said the first half figure of 624 tons may seem low, but ?we should remember that early 2011 saw a wave of profit taking as the prior rally ran out of steam, and equities were still enjoying a nice bull run.?
The change in investor attitudes toward gold comes as the sovereign risk crisis increases. ?Not only did we have the threatened contagion from peripheral to core eurozone countries but it also crossed the Atlantic in the form of the U.S. credit rating being downgraded. And both of these were critical to the surge in investment witnessed recently.?
Furthermore, the consultancy cited concerns over the world economy, continued low interest rates, worries about inflation in the industrialized world, inflation in emerging markets and conflicts in North Africa and the Middle East. Those issues should encourage a ?pro-gold environment,? Klapwijk said.
On the fundamental side, official sector purchases to over 200 tons in the first half of 2011 versus just 77 tons in all of 2010 supported prices and purchases by central banks will likely encourage investors, too, they said.
Jewelry purchases remain resilient even in the face of high prices, as buyers in India and China snapped up gold because of strong economies, bullish price forecasts and rising domestic inflation. The consultancy said jewelry sales in the first half of 2011 were up 7.5% year-over-year even as the average price rose 25%.
They note that the high prices have encouraged miners to increase production, which was up 4.9% in the first half of 2011 and this growth is expected for the next year or two. Hedging increased slightly, to a net contribution of 12 tons, but the group does not see signs of a return to heavy fresh hedging activity. Also, secondary supply is restrained, falling by just over 7% because of optimism for higher prices and less available scrap to sell in some countries. http://www.kitco.com/reports/KitcoNews20110915DeC_GFMS.html
