Gold to Reach $2,000 by Next Year as Investment Rises, GFMS Says
Gold may climb to a record above $2,000 an ounce by early next year as concern about currencies and low interest rates spurs investors to seek a protection of wealth, Thomson Reuters GFMS said.
Prices may rebound after Europe’s debt crisis strengthens the dollar and curbs liquidity, driving bullion down to as low as $1,550, the London-based researcher said today in a report. Investment, which dropped 7 percent last year, will gain in this year’s first half as scrap sales decline and central banks buy the metal, countering a drop in jewelry demand and rising mine production. The gains through next year may come as the metal nears the “closing stages” of its bull market, GFMS said.
Bullion climbed 6.4 percent since plunging to within 1 percentage point of a bear market on Dec. 29 as Europe’s leaders contend with the region’s debt crisis. Prices jumped for 11 consecutive years and holdings in exchange-traded products backed by the metal are within 2 percent of last month’s all- time high, valued at $124.8 billion.
“In the short term, the exchange rate can and does play a key role,” Philip Newman, a research director of precious metals at GFMS, said in an interview from London yesterday. “There’s still massive uncertainty. That uncertainty is therefore likely to encourage gold investors to remain in the market.”
Relative Performance
Bullion reached a record $1,921.15 an ounce in London in September and advanced 10 percent last year, beating commodities, global equities and Treasuries. Immediate-delivery gold traded at $1,645 by 4:43 p.m. in London yesterday and will average $1,640 in the first half, GFMS forecasts.
Total investment fell to 1,563 metric tons last year and will rise 7.3 percent to 680 tons in the first half, compared with a year earlier, the researcher said. Bar demand climbed 36 percent to a record 1,194 tons in 2011 and will rise 1.4 percent in the first half. Coin purchases gained 13 percent last year and will increase 2.7 percent in the first half, GFMS said.
China’s jewelry fabrication jumped 16 percent to more than 500 tons for the first time last year, and demand from India limited global declines to 1.9 percent, as U.S. purchases dropped for a 10th consecutive year. Total consumption may drop 3.1 percent in the first half due to a less auspicious year in India and as a weaker rupee versus the dollar boosts local prices, GFMS estimates. India remained the largest jewelry and total fabrication market last year, Newman said.
China’s usage “compensated for declines elsewhere,” Newman said. “As prices start to strengthen, that could impact” demand.
Scrap Sales
Scrap sales slipped 1.8 percent last year to 1,612 tons and may fall 3 percent to 734 tons in the six months through June as consumers become more accustomed to higher prices, GFMS said. Mine output advanced 3.8 percent to a record 2,812 tons in 2011 because of new projects, and may be 1,400 tons in the first half, up 3.2 percent from a year earlier, the researcher said.
Production cash costs rallied 14 percent to $628 an ounce for the first nine months of last year and the producer hedge book expanded by 12 tons in 2011, the first increase since 1999. Gold producers sometimes sell future output at fixed prices to secure loans and can reduce hedges by buying back contracts.
Central banks boosted net purchases more than fivefold to 430 tons last year, and may buy another 190 tons in the first half, GFMS said. Combined official holdings stand at 30,788.9 tons, data from the London-based World Gold Council show.
“Attitudes among central banks haven’t really changed,” Newman said. “There’s still that desire to come into the gold market to diversify some of the assets away from foreign exchange and to boost gold holdings.”
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To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net
To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.
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