The Hindu Business Line : Investor interest to keep gold buoyant: GFMS

At a glance
Expected slump in fabrication is attributable
to high prices and volatility.
Despite poor demand, investments may
still easily drive prices higher.

Our Bureau

Mumbai, Jan. 17

After gold decisively breached the psychological barrier of $900 an ounce, there is clear possibility of prices moving to $1,000/oz during the later part of 2008, on account of continuing investor interest and notwithstanding forecast slump in fabrication demand, and higher scrap sales, according to Gold Fields Mineral Services Survey-Update 2 released on Thursday.

Suggesting that a combination of weak dollar, record oil prices and their inflationary consequences, the US sub-prime crisis and its threat to GDP growth in the US and perhaps elsewhere, and lastly geopolitical tensions would continue to support the yellow metal market. The report cautioned that a short-to-medium term correction was possible, chiefly as a result of the speed of the recent price rise and the huge fund overhang on Comex.

Slump

The expected slump in fabrication is attributable to high prices and volatility; but continued robust GDP growth in many emerging economies and less-marked gains for local prices due to dollar weakness were likely to partially mitigate the impact of the anticipated gold rally.

According to GFMS, despite poor demand, investments may still be in a position to easily drive prices higher. On the supply side, for the first half of 2008, the report forecasts mine output to rise by a mere 2 per cent and official sector sales to be just over 200 tonnes.

Scrap sales are projected to increase by around 15 per cent to safely over 500 tonnes. On the demand side, the survey expects price damage. High prices will slash global jewellery fabrication demand by around 20 per cent to almost 1,000 tonnes. GFMS is world’s foremost precious metals consultancy.

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