Gold investment to rise to record 1000 tons in 2011: GFMS

(Commodity Online): Gold could rally to $2000 by 2011-end, according to Thomson Reuters GFMS Survey 2011 Update. Investment in all forms combined in the second half of 2011 is forecast to reach a record of 1000 tonnes, which equates to a value figure of over $60 bn( $1815 per ounce). This compares to the Update’s figure for the first half of 624 tonnes (or $29bn).

According Philip Klapwijk , Global Head of Metals Analytics at Thomson Reuters GFMS, “some may think our first half figure sounds a little conservative but we should remember that early 2011 saw a wave of profit taking as the prior rally ran out of steam, and equities were still enjoying a nice bull run”. The report then notes a sea change in investor behaviour, which was chiefly felt due to the intensification of the sovereign debt crisis. Klapwijk noted, “not only did we have the threatened contagion from peripheral to core Eurozone countries but it also crossed the Atlantic in the form of the US credit rating being downgraded. And both of these were critical to the surge in investment witnessed recently”.

Other factors felt to be significant included the deterioration in prospects for the world economy over August, the maintenance of low interest rates (frequently negative in real terms), fears over the emergence of inflation in the industrialised world, a continuation of high levels of inflation in many emerging markets and the outbreak of conflict in North Africa and the Middle East. Klapwijk continued, “in some ways, the confluence of events created almost the ‘perfect storm’ for gold investment and so, in the light of these developments the price spike to over $1,900 intraday becomes readily understandable. The lack of resolution to sovereign debt matters and ongoing gloomy news on the economic front also make it likely that this pro-gold environment will continue, and it’s this that forms the basis for the assault on $2,000”.

The Update, however, does spell out that some aspects of gold’s fundamentals were also supportive of the price. Perhaps the most interesting was the surge in net official sector purchases to over 200 tonnes in the first half from just 77 tonnes for 2010 as a whole. Klapwijk noted, “we are in essence in chapter three of the central bank story – we’ve left behind a period of heavy net sales, then a short period of neutrality and we’re now in a new environment of heavy buying”. This was felt doubly important as it did much to lift investor sentiment too. Gold prices were also felt to have benefited greatly from resilient jewellery purchases; the consultancy reports that in the first half they grew by 7.5% year-on-year despite a 25% rise in the period average price. Much of these gains were attributable to India and China and were in turn thought mainly the result of buoyant economies, bullish price expectations and troubling domestic inflation. On the flip side of this area, scrap supply was also relatively restrained, falling by just over 7%, due again to optimism over imminent price gains, plus near market stock depletion in some countries.

There was less support from the producer side. Hedging for instance swung back to the supply side, although the net contribution was a modest 12 tonnes and signs of a return to substantial fresh hedging are absent. Perhaps more importantly, mine production rose by 4.9% in the first half and the consultancy expects this to continue growing for the next year or two.

Posted by VBN on Sep 20 2011. Filed under Gold. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry