The Hindu Business Line : Experts bullish on gold

Demand-supply trend
Total demand for 2006 is projected to have fallen 1.3 per cent to 4,017 tonnes (4,070 tonnes).
On the supply side, official sector sales have fallen sharply by 42 per cent to 382 tonnes in 2006 (661 tonnes).
Old scrap sales are up by a quarter to 1,112 tonnes (888 tonnes).

Dubai , Nov. 28

While investment demand pushed gold prices beyond $500 an ounce in the past, renewed wave of investor interest over the next few months could push the market potentially above $700/oz by early next year, according to Mr Paul Walker, CEO of GFMS, a well-known precious metals consultancy.

He was delivering the keynote address at the inaugural session of Global Gold Forum here in the presence of participants representing producers, jewellery makers, traders, analysts and service providers gathered for a two-day conference to discuss issues such as opportunities and risks in gold investing, importance of jewellery branding, gold derivatives, demand and supply related issues, as also outlook for the bullion market.

Jewellery demand

Commenting on declining fabrication demand (down 14 per cent to 2,817 tonnes in 2006), Mr Walker said that in the absence of major reversal in investor sentiment, price floor at +/- $600 was likely to be maintained, and fabricators will buy on dips. Jewellery demand is expected to remain soft.

On gold exchange traded funds, the expert perceived ETFs as having fundamentally changed the manner of access to gold. "ETF has been a great invention that has shifted the demand curve," he remarked. While mine output has shown flat to declining trend since 2000, fresh investments, which have recently begun to flow into mining, would show results with a lag, Mr Walker told Business Line.

He added that by 2009 additional output of 200-300 tonnes could be expected. Total demand for 2006 is projected to have fallen 1.3 per cent to 4,017 tonnes (4,070 tonnes) with total fabrication demand and bar hoarding showing steep decline. On the supply side, official sector sales have fallen sharply by 42 per cent to 382 tonnes in 2006 (661 tonnes), while old scrap sales are up by a quarter to 1,112 tonnes (888 tonnes).

Outlook

What are the negatives for the gold market? According to Mr Walker, commodity cycle, interest rates, contango and supply-demand fundamentals are the negatives, while the positives include price trend, US dollar, debt mountain, under-priced risk, high stock prices, inflation/oil price, geopolitics and weight of money.

Mr Walker gave a rather wide range of $580-720 as the price range for gold over the next six months.

At the price outlook panel discussion, experts predicted, going forward, a rise in gold prices as also a strong spurt in silver for reasons as varied as weakening dollar, supply uncertainties, Asian consumption and rising investment demand.

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