Thomson Reuters GFMS figures gold potentially could fall below $1,550 an ounce over the next two months but also return to last year’s record highs before 2012 ends.
The consultancy listed its outlook for the precious metal Wednesday in conjunction with the release of its Gold Survey 2012 at events held in London, Johannesburg and Toronto. This was the 46th edition of the report.
The report indicated that net world investment fell in 2012 but physical investment in the form of bars was strong and central-bank buying continued. Jewelry dipped but only modestly so despite higher gold prices, while mine supply rose.
Thomson Reuters GFMS offered some caution about gold prices in the short term, citing some abatement of the eurozone debt crisis and lowered expectations for a third round of quantitative easing in the U.S.
“The low $1,600s came as little surprise and it’s quite possible we’ll see a push even lower, perhaps below $1,550 in the next month or two,” said Philip Klapwijk, global head of metals analytics with Thomson Reuters GFMS.
Still, the consultancy said it was bullish for the medium term. “We could easily see last September’s record high being taken out, and a push on towards $2,000 is definitely on the cards before the year is out, although a clear breach of that mark is arguably a more likely event for the first half of next year,” Klapwijk said.
One of the main expected drivers of such a reversal higher would be a resumption of acute fears over European sovereign debt, with Spain likely to be the new principal country of concern, the consultancy said. Further, Thomson Reuters GFMS looks for the U.S. economic recovery to falter, forcing the Federal Reserve to undertake additional monetary-policy measures. Both developments are expected to lead to a period of further monetary easing and not just in the industrialized world, the consultancy said, with China, India and Brazil also becoming obliged to adopt additional loosening.
“A corollary of all of this monetary largess is fears about resurgent inflation, and that becomes all the more likely if oil prices motor higher should tensions get any worse between Iran and the U.S.,” Klapwijk said.
Many of the factors expected to fuel investor interest this year also were present in 2011, including low or negative interest rates in some nations and shaky equity markets, which lower the so-called “opportunity cost” of holding a non-yielding asset such as gold and burnish its safe-haven credentials, Thomson Reuters GFMS said.
Gold-Jewelry Demand Dips But Resilient; Demand For Bars Rises Sharply
Thomson Reuters GFMS reported an overall increase in gold demand during 2011 to 4,486 metric tons, up 0.6% from 4,459 in 2010.
The Gold Survey showed that jewelry fabrication fell by 2% 1,973 tons in 2011, but said this demonstrated marked resilience considering soaring prices. “Gold was clearly dependent on emerging markets’ economic strength as China’s jewelry demand grew to a record level, while India’s fell by less than 3%,” Klapwijk said.
The consultancy’s broadest measure of net world investment fell by 10% to 1,605 metric tons. However, with higher gold prices, in value terms this was up by 15% to a record level of just over $80 billion, Thomson Reuters GFMS said.
Klapwijk said that there was a “substantial” rise in demand for physical gold, as opposed to paper gold products. Demand for bars rose by 37% year-on-year to 1,209 tons. This accounted for some 75% of all investment, he said.
“We had very strong demand globally for gold bars,” he said. “The question, of course, is whether we can expect to repeat this year such a strong number. Buyers of gold were looking for…gold in its purest form. There was much less interest, on a net basis, in paper-gold products and taking on something that was essentially somebody else’s obligation, even if was a gold-denominated obligation.”
The good physical demand occurred in most of the world, Klapwijk said. This appeared to be driven by concerns such as the euro and inflation, he added. “The only area where we didn’t see strong bar demand was the U.S.”
Meanwhile, the report said, net official-sector purchases rose by just over 450 metric tons. The net growth was the result of trivial sales by signatories to the European Central Bank Gold Agreement, coupled with heavy purchases elsewhere by central banks keen to diversify their dollar reserves, a development likely to lead to more sizeable acquisitions this year, Thomson Reuters GFMS said.
“Central-bank purchases hit levels that we haven’t seen in a generation,” Klapwijk said.
Total scrap supply fell by 3%, which was countered by a similar percentage rise in mine production, Thomson Reuters GFMS said.
Global scrap supply was 1,661 metric tons, the consultancy said. Recycling of gold increased in Western nations due to high prices, economic problems and the ease of recycling, the report said. In contrast, scrap from traditionally price-sensitive regions fell due to price acclimatization and bullish sentiment.
Mine production grew to a record 2,818 metric tons, Thomson Reuters GFMS reported.
“It seems evident that the mining sector is deriving clear benefits from a decade of rising prices, as this has given us a healthy pipeline of new projects coming on stream, and high absolute prices, as that means several mature operations are staying productive for longer than would otherwise have been the case,” Klapwijk commented.
Mining companies swung from net de-hedging of 108 metric tons in 2010 to a modest net hedging total in 2011. “Strategic hedging is not happening,” Klapwijk said, explaining that the small amounts occurring tend to be tied to specific projects.
Allen Sykora – Kitco New Aprol 11, 2012