GOLD looks set to record an average price of $US690 an ounce over the next six months according to precious metals consultancy GFMS, but there will be a risk of price volatility in the yellow metal undermining the investor-led price strength. The GFMS 2007 Gold Survey predicted investor-driven demand would drive gold higher as the yellow metal's reputation as a safe haven in unstable times increased buy-side interest in the commodity.
The metal passed the $700 barrier last week to hit a 16-month high of $714 per ounce, and has subsequently traded above that level, with the spot price of gold last at $709/oz.
GFMS executive chairman Philip Klapwijk said the consultancy expected gold's rally to continue.
"I don't think it will be a problem sustaining these elevated levels. We may not be completely out of the woods as regards speculator sell-offs to raise cash or reduce leverage in our new world of sub-prime jitters, but the norm of safe-haven buying should dominate investor activity from now on," he said.
The buying interest in gold was expected to be driven by "traditional" factors, GFMS said, such as the falling US dollar and reduced economic growth in the US economy. Should Middle East tensions also escalate, the gold price could move higher again.
GFMS also said that despite heavy liquidation by short-term speculative players in the yellow metal over the last half year, there was no evidence of any longer-term investors losing confidence and instituting strategic shorts in gold, a factor the consultancy said was "crucial" to the solidity of gold values.
However, the investment-led gold rally could also be at risk of price volatility, the consultancy warned.
A slump in de-hedging and central bank gold sell-offs could force the gold price lower, however fabrication and jewelry demand were expected to rise.
GFMS also noted that in the first six months mine production grew 3% to 1201 tonnes, with the largest increases coming from Indonesia and China. However, global cash costs were on the rise, up 20% year-on-year, and Australia recorded the largest cash cost rise.
