The Hindu Business Line : `$500-mark for gold no longer a fancy'

THERE is a clear upside for gold prices mainly arising out of the potential for investment and a strong base for a robust physical offtake, GFMS Ltd said in its latest Gold Survey 2005.

Perceiving a distinct possibility of a sharp slowdown in the US economy in the wake of unchecked twin deficits and the dollar weakness, coupled with a rally in oil prices, the London-based precious metals consultancy believes the downside for gold is quite restrained, given the robust nature of physical demand and its ability to respond to a dip in price.

"Gold heading for the $500-mark no longer looks fanciful," the Chairman of the consultancy pointed out while presenting the report. On the demand side, total fabrication rose to a three-year high of 3,164 tonnes with all sectors — including electronics (11 per cent) and other industrial and decorative segments (3 per cent) — posting gains.

Importantly, jewellery fabrication saw the largest absolute gain in 2004 at

129 tonnes, representing a gain of 5 per cent; and excluding scrap, the

increase in fabrication was an impressive 10 per cent, the report noted. The

largest gains were seen in India, Turkey and China, while Italy and the US

accounted for most of the losses.

The consultancy argues that the market sentiment has undergone a change and that consumers have begun to accept prices above $400 an ounce as fair and sustainable, since the offtake of the Indian jewellery industry grew by 16 per cent in the face of a 9 per cent rise in the rupee price.

Global mine production in 2004 fell by 5 per cent to an eight-year low of 2,464 tonnes, while official sector sales dropped by 23 per cent to a five-year low.

On the supply side, scrap sales fell heavily to 828 tonnes, a three-year low, despite a strong rise in the dollar price.

Much of the decline was centred on West Asia (mainly Egypt and Saudi Arabia), India and South-East Asia (chiefly Thailand and Indonesia).

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