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Gold/Mining/Energy : Gold and Silver Juniors, Mid-tiers and Producers -- Ignore unavailable to you. Want to Upgrade?

To: loantech who wrote (24588)	11/7/2006 5:55:50 PM
From: RealMuLan	Read Replies (2) \| Respond to of 78405

Fortis Bank Forecasts Weaker Gold Demand 11/3/2006 egoli.com.au In what has emerged as not particularly good news for gold bulls, a report commissioned by Belgo-Dutch Fortis Bank has suggested gold supply will outstrip demand in 2007, TheStreet.com reports. The report calculates supply will fall by 159 tonnes in 2007, but that demand will fall by 303 tonnes. Mine output is forecast to be up (+21t) while official bank sales will be down (-51t), hedging lower (-12t) and recycling also lower (-117t). Jewellery demand is expected to increase (+47t) as is electronic demand (+31t), but this will be overwhelmed by weaker ETF demand (-108t), zero central bank purchases (-100t) and reduced de-hedging (-186t). "Other uses" (coins etc) will rise 3t. This has led analysts at UK's Virtual Metals ? co-authors of the report ? to forecast a year-end gold price of US$580/oz, and then US$550/oz in 2007. This is in stark contrast to other gold analysts, such as GFMS, who still predict forecast gold at US$750/oz soon. The report did provide one caveat however ? the US dollar. The writers suggested a lot depends on the dollar, and a weaker greenback could boost prices. Advertisement This brings into question the specific value of the report. Ostensibly it is a pragmatic calculation of supply/demand numbers, with no allowance for sentiment. Gold bulls base their predictions squarely on a falling US dollar, and data coming out of the US suggests the US economy is definitely weakening as expected. Dennis Gartman reports ex-Fed governor Greenspan has spoken of the world's reluctance to continue building US dollar holdings. He suggests the greenback is losing its "reserve currency" status. US Treasury secretary Paulson said that a lower US against the renminbi is only a good thing, leading Gartman to remark: "All it needs now is for Dr. Bernanke to join the fray, and for President Bush to call for a lower dollar and the full table shall have been set." Perhaps after the mid-term elections. While Greenspan's comments have not yet been supported by hard evidence, a report from the China Daily may set the scene. China's US reserves are set to pass US$1 trillion shortly, and there is growing debate over how this should be managed. "In a bid to minimize such risks, the central bank should diversify its existing US dollar-dominated foreign reserves structure, and increase its holdings of euros or other major international currencies", said Li Yongsen, a finance professor at Renmin University of China. If China does finally move to do something about its imbalances, which are fuelling a liquidity boom, in turn pushing the economy at a faster-than-comfortable growth rate, then this can only be bearish for the US dollar. This should be bullish for gold, both as the dollar falls, and if China decides to buy gold as an alternative. Fortis Bank included zero central bank gold buying ahead in its forecasts. Yet China has at least alluded to the fact it holds only 1% of gold in reserves, and recently Russia indicated a desire to lift its gold holdings as well. Dennis Gartman notes a recent IMF World Gold Council report outlining world central bank gold holdings. It breaks down as such: Euro Area (39%), US (26%), BIS/IMF (11%), Other Europe (6%), Asia (6%), Rest of World (12%). Gartman makes note that the one area that is arguably the keenest gold buyer at a retail level ? Asia ? is disproportionately behind on a central bank level. If Asia moves to address its reserve mix, this could well be very bullish for gold. (Gartman has just re-established his long gold position). The spot gold price managed to struggle over the psychological US$600/oz barrier last night driven by Asian jewellery demand. Commentators suggest it will need to do some work around these levels before nervous buyers feel more confident. Advertisement It is also interesting that Fortis Bank predicted ETF gold demand. This can only be a guess, unlike production numbers which are more specifically forecast. It is true that ETF buying will be unlikely to reach the heady heights of early 2006, but if the gold price does start to move solidly above US$600/oz one suspects ETF interest will be renewed once more. All in all, mixed signals for the gold price. Fortis suggests a surplus will hang over the market, but then a change of central bank attitude could have a major impact. And then there are those that believe central bank holding numbers are spurious, particularly in the US, as they don't take into account derivative sales that undermine physical holdings. FN Arena is building the future of financial news reporting at www.fnarena.com . Our daily news reports can be trialed at no cost and with no obligations. Simply sign up and get a feel for what we are trying to achieve. Subscribers and trialists should read our terms and conditions, available on the website. All material published by FN Arena is the copyright of the publisher, unless otherwise stated. Reproduction in whole or in part is not permitted without written permission of the publisher.