Gold Prices May Rise to $1,400 Year's End on Low Interest Rates, GFMS Say

Gold may climb to $1,400 an ounce by the end of the year as investor demand will remain strong because of low interest rates, the European sovereign-debt crisis and fears about an economic slowdown, GFMS Ltd. said.

“The risks are in the upside in terms of surging investment,” Chief Executive Officer Paul Walker said in an interview in Tokyo today. “That could put the price toward $1,400 for sure by the end of the year.”

Gold for immediate delivery traded at $1,356.30 an ounce at 2:25 p.m. Tokyo time. The price reached a record high of $1,364.77 on Oct. 7 and is headed for the 10th year of annual gains as investors seek to protect their wealth from a weakening U.S. dollar and lower interest rates. Goldman Sachs Group Inc. forecast on Oct. 11 that bullion may gain to $1,400 in three months and $1,525 in six months.

“The investment climate for gold at the moment is very strong, so there is no doubt that it could go higher,” Walker said. The price could exceed $1,400 and is unlikely to drop below $1,300 within the next six months, he added.

Expectations for higher gold prices put a brake on scrap supplies and central bank sales this year, Walker said. The official sector is forecast to become a net buyer of 15 metric tons this year compared with net selling of 30 tons last year, according to a report presented by GFMS, the London-based research company, to an industry seminar today in Tokyo. Supply of recycled metal is expected to gain 4.8 percent to 1,753 tons.

Central Banks

“Central banks in Europe are likely, over the next year or two years, to return to modest net selling,” Walker said. “By any measure, most of the European central banks are overweight in gold, and some members will start selling.”

Net sales by European central banks could be somewhere between 50 and 150 tons, and might be absorbed by emerging economies that seek bullion for asset diversification, he said.

Demand is forecast to grow 2.6 percent to 4,389 tons this year from 2009, as investment demand for gold bars may surge 59 percent to 337 tons, according to the GFMS report.

Concerns over inflation, the value of the dollar, European debt and slowdown in global growth will likely fuel investment demand in coming months, Walker said.

Assets in exchange-traded products backed by gold increased to 2,086.27 tons yesterday from 2,083.55 tons on Oct. 11, according to data compiled by Bloomberg from 10 providers. Holdings reached a record 2,097.01 tons on Sept. 30 and are up 16 percent this year.

Gold has gained 24 percent this year, outperforming stocks, bonds and some industrial commodities.

The Dollar Index fell for a second day to near the lowest level since January on speculation that the Federal Reserve will take steps to support growth. The Fed yesterday said in its September meeting minutes that it was prepared to ease monetary policy “before long.”

To contact the reporter on this story: Aya Takada in Tokyo at atakada2@bloomberg.net

To contact the editor responsible for this story: Richard Dobson at Rdobson4@bloomberg.net

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