Gotta get that GOLD
Gold's all-time high of $850 at risk
Wed, 12 Apr 2006
Gold's all-time high of $850 per ounce — reached in 1980 — could be "taken out", Gold Fields Mineral Services (GFMS) chairman Philip Klapwijk said at the release of Gold Survey 2006 on Wednesday.
The survey, released by consultancy firm GFMS, was launched in London.
The consultancy feels this bull run would be overwhelmingly driven by investment and the report details the factors that sustained the drive in 2005, and would likely continue to do so moving forward.
Much emphasis was put on the supportive background of unsustainable global economic imbalances, revolving around the twin US deficits.
Boosted by Hurricane Katrina
"Levels safely over $600 are now in our sights and further hefty gains over the next year or two are quite possible - in the right circumstances, the 1980 high of $850 could even be taken out," GFMS chairman Philip Klapwijk said.
But, Klapwijk continued, "investors often look for a reason to jump in and this arrived at end-August in the form of Hurricane Katrina and a rally in the energy complex".
Other key triggers for 2005 were investors' belief that central banks were becoming friendlier to gold and a phase of marked yen weakness which boosted investment in Japan.
For 2006, the chief drivers of investment are expected to remain the high probability of a sharp slowdown in US economic growth and a slide in the dollar.
Tension in the Middle East
Other supportive factors include greater inflationary pressures and political tensions in the Middle East. "The sheer success of investment to date in gold was also thought significant and certainly would not harm another dramatic possibility; a range of new players, pension funds for example, entering the commodities market in general.
"You're playing with fire if you ignore the weight of money argument, looking ahead into 2006. We'd only need to see a tiny slice of mainstream assets diverted into gold, which comparatively is a pretty small market, and the price could really take off," Klapwijk commented.
With the gold price having risen substantially in 2005, the Gold Survey contains a quite surprising statistic - jewellery demand rose by almost 100 tons last year.
The report, however, does stress that this strength was essentially confined to the first half, when price stability and a growing acceptance of prices in the low $400s in conjunction with strong GDP growth in Asia led to a surge in the jewellery sector.
Volatility increased
This was thought to have done much to underpin prices, just at a time when investment was looking somewhat jaded and official sector selling was at its peak.
In the fourth quarter — and into early 2006 — however, marked weakness was noted in countries such as India as the rally got underway and price volatility increased. These swings were also seen in scrap supply, which fell in the first half before surging in the fourth quarter.
Looking ahead, GFMS see physical offtake as an area of concern. Klapwijk cautioned, "from what we've heard for the first few months of this year, we could see jewellery demand slumping back almost 500 tons for the full year. That'd leave jewellery offtake some 400 tons below mine production. That's just not sustainable in the long term".
Mine production up 2%
A part of the reason for this threat is increasing mine production. The Gold Survey notes that this rose by a modest two percent in 2005, thanks largely to new projects in Latin America and recovery in Indonesia, but this growth should pick up to around four percent in 2006 as new mines come on stream or ramp up to full capacity.
The Survey reports that net official sector sales rose by 40 percent to record levels in 2005.
Looking ahead, the report pours cold water on the idea that some of the major East Asian dollar holders could purchase significant quantities of bullion in the short to medium term.
However, it does expect decent levels of buying elsewhere such that non-Central Bank Gold Agreement (CBGA) signatory-countries could swing from a typical position of net sellers of 100 or so tons to modest net buyers.
AI
