Capital Gold Group Report: Positive Investment Climate for Gold to Continue
Posted: Wed, 09 Apr 2008
MiningMX.com -- The gold price could regain its footing above $1,000 this year, with market conditions that drove the gold price to a record high in March still in place, but the consequences for jewelery demand will be dire, said GFMS chairman Philip Klapwijk.
Central banks outside the European banks represented in the Central Bank Gold Agreement became net buyers for the first time in a decade, London-based precious metals consultancy GFMS said in its Gold Survey 2008.In presenting the Survey, Klapwijk said the correction seen after gold hit an unprecedented high of $1,030/oz on 17 March was only natural. Gold fell steeply to below $900/oz only to recover and bounce back to around $920 this week.
“We weren’t at all surprised that the market saw a hefty correction in the last few weeks, as the speed of the earlier gains looked a little unsustainable. However, we don’t think current hesitancy means it's game over for the rally,” he said.
“Many of the drivers behind this investor push after all - dollar weakness, skeletons in banks’ closets - are still very much with us. But quite where it’ll top out is a difficult call - maybe $1,100 is achievable this year but $1,200 plus could be going a bit far”.
While China leap-frogged Turkey and Italy during 2007 into the second position behind India as the largest jewelery market, the outlook for the market is not rosy.
“Another break above $1,000 is a real possibility, but even if gold does not reach four figures again in 2008, we still expect to see a fall of in excess of 200 tonnes in global jewelery demand this year,” Klapwijk said.
Stripping out scrap, global jewelery manufacture increased by 10%, much of it coming from the Middle East.
The Survey noted a positive climate for gold investment would continue into late 2008, possibly rolling into the first half of 2009 as investors continued to seek alternatives to preserving their wealth in light of falling confidence in banks, a moribund US economy and inflation.
“This view is mainly based on expectations that the credit market crisis will persist in the medium term, perpetuating increased risk aversion as well as creating a bearish outlook for the US dollar, the global economy and equity markets coupled with rising inflationary expectations under conditions of negative real short-term US interest rates,” Klapwijk said.
“That said, the large involvement of speculators in the market suggests that corrections such as the one experienced recently are likely to be repeated, resulting in a volatile rally to a peak comfortably over the $1,000 mark later this year or perhaps early in 2009.”
The Survey noted the market had been in divestment mode from January to August, particularly in the over-the-counter market, with “stellar growth” seen in the following four months. GFMS estimates the net investment figure for 2007 at a lower 158 tonnes.
“Combined with numbers on bar hoarding and official coin fabrication, this generated a world investment figure of 531 tonnes for the year, down by close to a third year-on-year.”
Signatories of the Central Bank Gold Agreement (CBGA) lifted their sales by 50% to a more “normal” level of 481 tonnes during 2007, the third year of the agreement.
“Moving to countries outside the CBGA, in 2007 these swung to the demand side on a net basis for the first time in over a decade, as a handful of purchases of moderate magnitude more than offset other sales seen over the year.”
International Monetary Fund (IMF) sales of 403 tonnes are still some way off, needing to gain approval from members, particularly from the US government, Klapwijk said.
GFMS forecasts that global mine production in 2008 will remain broadly in line with the level recorded in 2007, which was down 0.4% year-on-year to an 11-year low.
Gains in Asia offset declines from other gold-producing areas, particularly Africa, where output dropped 29 tonnes led by South Africa.
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