Gold bull run set to continue
Gold's bull run is likely to continue in the medium
term and prices may surge beyond last year's 26-year high, boosted by safe-haven buying, strong fundamentals and
tensions in the Middle East.
By ul Prakash
Reuters
Thu Sep 13, 2007
LONDON (Reuters)
Precious metals consultancy GFMS Ltd. said in an update of its annual
gold survey on Thursday that average gold price could rise to a record
level of $690 an ounce in the second half of 2007 and further gains were
likely in 2008.
The average price of the metal stood at $658 in the first half of this
year, according to Reuters charts. Spot gold surged beyond a key level
of $700 last week and hit a 16-month high of $714.20 on Tuesday. It was
quoted at around $709 in early trade on Thursday.
"The price will not just go up in a straight line and after a $60 move
we can sooner or later expect some degree of retracement. That said, we
are into a new phase of the bull market and we are expecting a $670-$740
range for the rest of the year," Philip Klapwijk, chairman of GFMS, told
Reuters.
Gold has rebounded more than 11 percent since a seven-week low of
$641.10 in mid-August, when investors sold metals for cash to cover
margin calls on losses arising from a meltdown in the U.S. subprime
mortgage market.
"The recent rally through the $700 mark suggests that the second order
effect of the crisis in global markets on gold investment has begun,"
Klapwijk said in a statement.
"Fears of further losses in traditional investments, that are highly
leveraged on a problematic subprime mortgage market, are pushing
investors towards safe-haven assets such as gold."
GFMS said investor sentiment was likely to remain positive this year and
in 2008. However, in the short term, liquidations were possible as
crises in global markets could once again force speculators out of long
positions in gold.
"We may not be completely out (of) the woods as regards speculator
sell-offs to raise cash or reduce leverage in our new world of sub-prime
jitters, but the norm of safe-haven buying should dominate investor
activity from now on," it said.
STRONG DEMAND, LOW PRODUCTION
GFMS said global gold demand for jewellery fabrication jumped 23 percent
to 1,288 tonnes in the first half of 2007 from a year earlier because of
a drop in price volatility. Demand might rise by 6 percent to 1,309
tonnes in the second half.
The consultancy raised its forecast of gold dehedging by producers to
100-180 tonnes in the July-December period of 2007 from an earlier
estimate of 80 tonnes following huge buybacks by Australia's Newcrest
Mining.
The company bought 2.3 million ounces of gold in the last few weeks and
planned to buy a further 1.7 million ounces over the next 12 months as
part of its plan to exit its gold hedges.
Gold miners typically hedge more -- contracting to sell nuggets not yet
mined at fixed prices -- when they think bullion prices are in long-term
decline, but prefer greater exposure when the gold price is running
higher.
The survey said net selling of gold by central banks rose 4 percent to
226 tonnes in the first half of 2007 from a year earlier and was
expected to rise further to 277 tonnes in the second half of 2007.
Global mine production in the six months to June rose 2.6 percent to
1,201 tonnes from a year earlier, but output in the second half of 2007
might decline by 1.6 percent to 1,284 tonnes due to an expected drop in
production in Indonesia, it said.
GFMS said China, which has become the world's second largest producer
after seven years of strong, continued growth, might become the world
leader, especially if gold output in South Africa continued to decline.