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Mumbai , Sept 17

GOLD Fields Mineral Services (GFMS) has forecast that gold prices could go beyond the $390 per ounce level and possibly breach the $400-mark before the year is out.

Factors are seen as favourable - stocks are looking shaky and the dollar is heading south, according to GFMS.

However, at prices above $390 an ounce, the offtake is expected to peter out in India, GFMS said in its Gold Survey - Update I, released on Wednesday.

"Then the market could see yet higher volumes of scrap coming back onto the market. We are forecasting a modest rise in this over the second half but things don't have to change that much for scrap to hit the 1000-tonne mark this year,'' GFMS said in a release quoting its Managing Director, Mr Philip Klapwijk.

GFMS did not give any indication if prices would retreat after touching $400 levels. However, it does not expect prices to go below $350 levels in the correction phase.

In the event of gold prices touching $400 levels, there is a possibility of gold sales by central banks, mainly those, which are not signatories to the European Central Bank Gold Agreement.

It has also forecast a substantial drop in producer de-hedging in the second half of the year. Fabrication is also forecast to decline in the second half but GFMS sees strong untapped potential in the price sensitive markets like India and West Asia. Demand from these countries is likely to respond well to prices in the range of $ 350-360 per ounce.

Mine production is expected to edge up by 0.7 percentage point. "However, the reduction in pipeline projects and currently scheduled mine closures are expected to bring about a fall in output over the next few years,'' GFMS said.

World fabrication showed a decline of 1.8 per cent in the first half of 2003 on account of a combination of factors - sluggish economic growth, poor consumer confidence and higher gold prices.

The fall in first half jewellery output was much sharper as strong gains in India and Turkey were offset by sharp falls in Europe and East Asia, GFMS said.

"In addition, the decline in jewellery fabrication excluding scrap was higher at 11 per cent year-on-year due to markedly higher scrap volumes in East Asia and West Asia which substituted for new bullion,'' it said.

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