(Kitco News)Gold will likely suffer a setback in the first few months of the year with prices moving materially higher towards the summer, possibly hitting $1,600 by late 2011, the consultancy GFMS said Thursday in its Gold Survey 2010.
GFMS expects gold to approach $1,500 mid-term and even breach $1,600 by late 2011. Low interest rates, the elevated level of government debts in Europe, the United States and Japan, and the QE2 and its ramifications for the dollar will all play a role in gold’s rise, it said. The survey is its latest report on the gold market. Philip Klapwijk, chairman of the independent metals research consultancy unveiled the group’s forecast in Toronto.
Though GFMS said gold’s losses in the first week of January are not an indicator of a true reversal, it did warn that bulls might be disappointed in the opening months of the year.
GFMS said it is not expecting any real support for further price gains to come from jewelry demand, which it believes will fall by 7% in the first half. However, the report noted that “good” jewelry related buying will come from Asia, which should defend the market’s underside.
The report highlighted the role that investment demand played in bringing about a series of record prices highs and the 26% jump in the annual average in 2010.
“Press attention certainly centered on smaller countries like Greece and Ireland and their potential to destabilize the euro. However, we could easily see the crisis cross the Atlantic as America’s QE2 steams on,” said Klapwijk in a release.
GFMS said last year’s gold rally was also helped by a decrease in scrap which it estimates fell by 1% last year, despite the jump in prices.
“It may seem odd to have scrap down at the same time as a massive rally in the price. But that’s what looks to have happened in the face of price acclimatization, lower distress selling and some consumers postponing selling back as they were expecting yet higher prices in the near future,” Klapwijk said.
The report also noted that official sector activity was a key factor in gold’s rise last year. Klapwijk said, “The absolute scale of the swing from 2009’s net sales of around 30 tonnes to last year’s net buying of almost 90 tonnes was not great, but that did a fair bit to boost investor sentiment.”
GFMS noted that the two obvious negatives for the price were mine production and producer de-hedging. “The former was estimated to have risen by almost 3% last year, chiefly as new projects came on stream or ramped up their output, with further gains expected for the first half of 2011.
De-hedging meanwhile was estimated to have fallen by over 40% last year, leaving the outstanding year-end producer book at trivial levels of under 100 tonnes,” it said.
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