Gold prices could fall close to $1,500 in the next few weeks but should rise towards $2,000 before the end of the year, analysts from Thomas Reuters GFMS said Wednesday in issuing the 2012 edition of the company’s Gold Survey.
“The low $1,600s came as little surprise and it’s quite possible we’ll see a push even lower, perhaps below $1,550 in the next month or two, “ Philip Klapwijk, head of metal analytics for the precious metals consulting firm, said in prepared remarks.
But the firm is bullish for gold in the medium term, he said. “We could easily see last September’s record high being taken out and a push on towards $2,000 is definitely on the cards before the year is out, although a clear breach of that market is arguably a more likely event for the first half of next year,” Klapwijk added.
The 46th edition of the company’s annual gold report containing more than 120 pages of statistics, commentary and analysis on world gold supply, demand and prices in various currencies, Gold Survey 2012, was launched at events in London, Johannesburg and Toronto.
Klapwijk told the London event that one of the main drivers of a reversal in trends this year would be a resumption of acute fears over euro-zone sovereign debt, with Spain set to be the new principal area of concern.
He added that over the next few months the US recovery is expected to also falter and force the Federal Reserve into taking additional monetary policy measures. Both developments are expected to lead to a period of further monetary easing with China, India and Brazil joining the industrialized world in adopting additional loosening strategies.
“A corollary of all this monetary largess is fears about resurgent inflation, and that becomes all the more likely if oil prices motor higher should tensions get any worse between Iran and the US,” Klapwijk said.
Analysis in the Gold Survey suggests that low or negative interest rates and shaky equity markets have lowered the opportunity cost of holding gold and burnished its safe haven credentials. But, even so, total gold investment actually dipped last year in tonnage terms as selling centered on the futures and over-the-counter markets and stemming from liquidity squeezes, profit taking and technical selling outweighed bumper volumes of physical investment. GFMS estimated that the value of world investment increased by 15% to a record of just over $80 billion last year.
Central bank activity also turned around in 2011 and official sector purchases of gold rose to just over 450 tonnes, the analysts said. The activity included continued trivial sales by signatories to the Central Bank Gold Agreement and heavy purchases elsewhere by central banks eager to diversify dollar reserves, a trend that is expected to continue this year, they said.
Gold jewelry fabrication also declined by only 2% last year, which the analysts suggested demonstrates marked resilience in the face of soaring prices. “Gold was clearly dependent on emerging markets’ economic strength as China’s jewelry demand grew to a record level, while India’s fell by less than 3%,” Klapwijk said.
Heavy western losses in jewelry was also described as having been replicated in reverse by a major increase in jewelry scrap generation as sellers were motivated by high prices, economic problems and the ease of recycling. Price acclimatization and bullish sentiment also contributed to a decline in scrap from traditionally price sensitive areas, contributing to a decline in total global gold scrap of 3%.
This scrap drop all but countered a rise in mine production for a third straight year, which the GFMS data showed to have increased 3% in 2011.”It seems evident that the mining sector is deriving clear benefits from a decade of rising prices, as this has given us a healthy pipeline of new projects coming on stream, and high absolute prices,” Klapwijk said. “That means several mature operations are staying productive for longer than would otherwise have been the case.”
The analysts said that producer hedging had swung from net de-hedging of 108 tonnes in 2010 to a small positive in 2011 but added that this does not represent any sea-change in attitudes towards hedging but rather ongoing project hedging and the small scale now of the legacy postion.
Phil Burgert is managing editor of ResourceInvestor.com. He can be contacted at email@example.com.