Gold more likely to fall than rise -Merrill analys
PRAGUE, June 16 (Reuter) - The world gold bullion price is more likely to fall to $250 per ounce within 24 months than climb to $450, Ted Arnold, metal markets analyst at Merrill Lynch, said.
Addressing a Merrill Lynch client dinner on the fringe of the Financial Times Gold Conference, Arnold said that hopes for the market turning bullish were ``rather distant at this point in time.''
On Monday gold fixed at $340.95 in London.
He said the two hopeful scenarios for the gold price rising were that big chunks of South African and Australian mine capacity would shut down because they were uneconomic at current pries.
``The closure of 300 or 400 tones of capacity would be a nice little boost for the market,'' he said.
South African miners had total mining costs of $334 per ounce on average and the Australian miners' total averaged $358, he said.
But closures would happen only if gold prices were much lower for a prolonged period, and even then closures would not be irreversible.
If the South African mining houses restructured and introduced a more ``hedging friendly'' management, ``we could see hundreds and hundreds of tonnes of forward sales coming out of South Africa.''
The second bull point could come from jewellery demand, which was growing at between 3.5 and 4.0 percent annually.
But the bulk of jewellery demand was price sensitive and total supply was moving towards the same rate of growth.
``The chances of more supply coming along in the next 24 months are very much higher than is the case for more sustained demand,'' Arnold said.
Forward selling from South Africa and much more mobilisation of reserves from central banks would add to additional supply.
Overhanging the market was the equivalent of 51 years of gold supply held by central banks (35,000 tonnes) and in private hands (85,000 tonnes). ``So a lot of mine supply can close down without having a lot of upward impact on the price,'' Arnold said.
In a falling market existing holders of investment jewellery would stop buying more, he said.
Some gold-hoarding countries like China were already showing signs of switching to other investments and consumer durables.
``The bulls don't seem to realise that the weight of hot money in this world is not going to pour back into gold as it did in the 1970s,'' he said.
``Gold has had its day in the West as a financial asset as a hedge against system risk,'' Arnold said.
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Seems like less than 30% of the above ground gold supply is in the hands of the central banks.
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