Gold prices ‘could hit $850’Published: Sunday, 11 December, 2005, 08:40 AM Doha Time
gulf-times.com
LONDON: Gold prices are likely to remain strong in the near term as the metal is getting tremendous support from investment funds and fundamental factors such as slow growth in mine output, analysts have said. One analyst predicted the yellow metal could even hit $850 by 2007.
Gold demand was seen surpassing mine supply and the move to develop new mining ventures had been slow despite prices surging to their highest level in more than 24 years, as production costs had sharply risen.
“We have got a very positive scenario in the short term. From a trading point of view, there is still room for further strengths in prices,” said Alan Williamson, head of commodity research at HSBC Bank.
“At the moment, gold is clearly very much in flavour. Gold is now rallying in all currencies,” he told a gold investment summit organised by Euromoney Seminars.
Spot gold prices have risen nearly 20% this year on heavy buying by funds that have been diversifying their portfolios into commodities for better returns and on fears of inflation and economic growth.
Bullion prices hit a fresh near-25-year high on Friday above $530 an ounce and have gained over $100, or 27%, from a low point in May.
“Gold still has some upside potential,” said Paul Walker, chief executive officer of GFMS Limited, a precious metals research consultancy.
He said gold prices were expected to continue to rise in 2006 and it was not impossible to see gold spiking to $850 an ounce in 12 to 18 months. Physical markets have also been supporting the price rise, he said.
Physical demand for gold was expected to rise to 3,957 tonnes in 2005 from 3,840 tonnes in the previous year, while mine production was seen increasing to 2,495 tonnes from 2,461 tonnes, Walker said.
“Diminishing rate of primary supply of gold to total above-ground pool is reviving gold’s scarcity properties,” said Georges Lequime, precious metals analyst at RBC Capital Markets.
“Even $514 is not igniting a short- to medium-term supply side reaction,” he added.
Industry experts said mining costs had risen significantly over the past years because of more costly fuel, power, freight and labour.
But miners had failed to work on new big projects as many people were not sure how long the price rally would last.
Analysts said prices were now rising because of huge speculative activities, but demand-supply factors become more important in the long term.
They also said that gold’s bull run was continuing despite a rise in the dollar but the metal could gather more strength if the US dollar weakened against major currencies.
Gold prices generally rise with a fall in the dollar as the metal becomes less expensive for holders of other currencies.
Philip Klapwijk, chairman of the UK-based GFMS and director of a precious metals fund, said net gold sales by central banks are expected to slow down after peaking in 2005, and some may opt to buy bullion to reduce their dollar dependence.
“In my view, the peak in anti-gold sentiment has probably passed,” said Klapwijk.
Gold prices had been rising and so it would not be easy for many European central banks to sell, he told the gold summit
“Central banks find it easier to sell in a declining market than a rising one.”
In March 2004, 15 European central bank renewed a 1999 pact to limit their sales over a five-year period to 2,500 tonnes, with annual sales limited to 500 tonnes. The total was up from 2,000 tonnes in their first agreement.
Klapwijk said a third gold pact might follow the end of the current accord in late 2009, but sellers for 500 tonnes a year might be lacking.
“The annual sales volume is unlikely to rise from the 2005 peak.
“The number will probably fall, especially as there will be some countervailing buying coming into the market,” he said.
Gold reserves held by European central banks fell by about 500 tonnes by the end of September from a year earlier, he said.
Above-ground stocks of gold were estimated at 153,000 tonnes at the end of 2004, of which official holdings represented about 19%, while 51% was in the form of jewellery, he said.
“Countries like China may start to diversify their reserves in a big way,” Klapwijk said, adding that Russia, Iran, Venezuela and other central banks were very probable buyers.
Other analysts have said some central banks might be looking at gold differently after its robust performance over the past four years, but that they were a long way off buying actively. – Reuters |
