Gold ready to rocket

Although gold has had a lower start to the year after its record struck in December 2010, independent metals research consultancy GFMS believes towards the northern hemisphere summer prices could start to move materially higher, with gold possibly breaking through $1,500 an ounce at that stage. (I-Net Bridge)

Releasing its 'Gold Survey 2010 - Update 2' in Toronto on Thursday, the consultancy said it also sees an approach to or even a breach of $1,600/oz by late 2011 or early 2012 as quite feasible.

Much of this is expected to be driven by still low interest rates, poor returns elsewhere, the elevated level of government debts in Europe, the United States and Japan, and lastly nagging concerns over quantitative easing in the United States and its ramifications for the dollar.

Philip Klapwijk, chairman of GFMS, highlighted the critical role that investment demand played last year in bringing about a series of record prices highs and the 26 percent jump in the annual average.

These elevated levels of interest were ascribed to a raft of factors, most notably European sovereign debt concerns and rising concern about fiat currencies in general.

Klapwijk noted that press attention centred on smaller countries such as Greece and Ireland and their potential to destabilise the euro. "However, we could easily see the crisis cross the Atlantic as America's QE2 steams on".

Loose fiscal and monetary policy in the United States, such as December's tax cuts package and the maintenance of low or negative real interest rates, were felt to only be storing up problems.

Klapwijk noted "inflation may seem a quite distant threat today but there's many an investor out there who sees real longer term danger in current US policy and the lack of political will or consensus to start tackling deficits."

He noted the shaky prospects for GDP growth in most industrialised countries was also seen as having provided another boost to gold investment.

"We've seen how sensitive the market can be to economic data with gold having recently come off around $40 in a matter of days in response to some brighter news out of the US."

He said gold's losses in the first week of January were not felt, however to presage a true reversal in the longer term rally, although the consultancy did warn that the bulls might be disappointed in the opening months of the year.

But by the northern hemisphere summer, prices could start to move materially higher.

The consultancy is, however, not expecting any real support for further price gains to come from jewellery demand, which based on current price projections, GFMS expects to fall by 7 percent in the first half. However, it was noted that good jewellery related buying and, in Asia, a bounce back in bar hoarding were expected to emerge on any price dips, which should defend the market's underside.