The Hindu Business Line : Gold prices may average $690/oz in second half

Mumbai, Sept. 13 Gold’s safe haven investment status is intact as evidenced by the recent investor-led push to over $700 an ounce and further gains in 2008 through continued positive investor sentiment may be expected.

In the second half of this year, prices could average a record $690/oz.

This is simply the gist of GFMS first update of Gold Survey 2007.

The buy-side interest was driven mainly by traditional factors such as an anticipated fall in the value of the US dollar, lower economic growth and therefore equity values (particularly in the US) and the possibility of cuts in interest rates, again mainly in the US in an attempt to forestall recession, the report pointed out.

Talking of demand, following a drop in price volatility, jewellery fabrication grew by a robust 240 tonnes or 23 per cent year-on-year, and in terms of excluding scrap, the increase was yet greater at 46 per cent, the report said.

India’s share

India accounted for more than 70 per cent of the rise in jewellery demand while East Asia and West Asia also saw sizeable gains. The second half of 2007 could see a further increase in fabrication demand; but that will depend strongly on the scale and timing of the gold rally, according to the consultancy.

Producer de-hedging

While producer de-hedging had surged to record levels of over 300 tonnes in the first half, in the second half de-hedging is expected to fall to a subdued level of about 80 tonnes.

Mine production

On the supply side, mine production in H1 grew by 3 per cent to 1,201 tonnes.

There may be small dip in H2, but full year 2007 production is forecast to remain higher.

Scrap sales fell by 28 per cent year-on-year in H1 to just over 450 tonnes; but in India the decline was modest at 17 per cent only.

Speculator sell-offs

While expressing optimism that there may be no problems in sustaining the current elevated price levels, GFMS added a note of caution that one may not be completely out of the woods as regards speculator sell-offs to raise cash or reduce leverage in the new world of sub-prime jitters. However, gold fundamentals and unending geopolitical concerns will continue to dictate direction and will provide fuel for a bull run that may eventually move to a fresh 26-year high, the report asserted.

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