Gold price may touch record $1,100

Gold could touch $1,100 an ounce, beating its present record high of $1,034 scaled in March last year, according to a survey by Gold Field Mineral Services (GFMS), a London-based independent precious metal research consultancy.

   

The 42th edition of the annual Gold Survey also forecasts gold prices to enter the $1,000-level in the coming months on surging demand for the precious metal as a store of value. Spot gold is currently just above $875 an ounce.

While unveiling the survey in London on Tuesday, Philip Klapwijk, chairman of GFMS, said, “The price may have pulled back a fair bit from the highs but that was largely just the market’s reaction to jewellery demand crumbling and scrap booming. It’s far from game over for investors and it will be that crowd which sets the price alight.”

The report said that the fiscal and monetary measures taken by the global economies, mainly the US, may enhance gold’s potential through their inflationary pressures. Apart from that, the global central banks may resume interest rate cuts, which may make the yellow metal an attractive option for investment.

The consultancy, however, cautioned that the escalation will not be straight as a summer lull or the need for inflationary pressures could keep prices below $900 in the short term. The survey showed 40 per cent rise in official mining, the only area in fabrication to register an increase in 2008. But, a 10 per cent or almost 250 tonnes fall in jewellery demand in response to high and volatile prices, coupled with a slowdown in the economic growth, negated the rise in fabrication demand.

During 2008, jewellery demand resumed in the late summer as prices sank through the $800-mark. Hadn’t buying resumed, the price could have fallen further, Klapwijk added.

Total fabrication fell by 7 per cent to 2,850 tonnes in the last year, its lowest level since 1988. The bulk of the loss was attributed to the slump in the first half, followed by a slight recovery in the third quarter and near stability in the fourth quarter in the jewellery sector.

Global mine production fell by a moderate 3 per cent in 2008 to the lowest level since 1996. The largest drop last year was seen in Indonesia, while much of the remaining losses were concentrated in South Africa and Australia.

In contrast, gold production in the Commonwealth of Independent States (CIS), primarily in Russia, and Latin America (largely concentrated in Peru and Mexico) saw gains. China maintained its position as the leading gold producing country, while the US moved into second place.

Net official sector sales plummeted by 49 per cent year-on-year in 2008 to just 246 tonnes, the lowest level since 1995.

The decline combined with lower mine production was broadly offset by the surge in scrap supply, resulting in a marginal fall in the total supply in 2008.

The decline was the result of lower Central Bank Gold Agreement (CBGA) disposals and modest net purchases outside the group. Driven by low lease rates and, above all, growing concern over counterparty risk, central banks continued to exit from the lending market.