The Hindu Business Line : GFMS sees further highs for gold

Gold prices could spurt further to historic highs as huge investment interest in the yellow metal has more than neutralised the collapse in physical offtake, according to GFMS Ltd.

In its Gold Survey 2006 released on Wednesday, the London-based precious metals consultancy saw further strong increase in price. Levels safely over $600 an ounce are not only possible, but further hefty gains in the next year or two look achievable.

Admittedly, the bull-run has been accelerated by high-energy prices, twin-deficits of the US, weakening currencies and increased interest shown by central banks. Role of funds including pension funds is also weighing heavily on the market.

MARKED WEAKNESS

Interestingly, jewellery demand expanded by 100 tonnes in 2005, with much of the increase confined to the first half because of relatively more steady prices and strong economic growth in Asia. However, the report admits, in the fourth quarter of 2005 and into early 2006, marked weakness was noted in countries such as India as the rally got under way and price volatility increased.

On the supply side, gold mine output increased by 2 per cent in 2005 to a little over 2,500 tonnes. Net official sector sales soared by 40 per cent to record levels of over 650 tonnes. Scrap sales increased by a mere 1.5 per cent.

On the demand side, the report noted, total fabrication grew by 4 per cent to a four-year high of 3,300 tonnes, driven largely by jewellery demand. From about 400 tonnes in 2004, producer de-hedging slumped to 130 tonnes in 2005.