Gold may gain over 23 per cent to achieve a fresh all-time high of $1,000 an oz in the first half of 2009 on surging net investment demand from retail investors, who are motivated to own the yellow metal because of fears following the string of bank failures and stresses in the broader global financial system, forecasts Gold Fields Mineral Services (GFMS), a London-based independent consultancy and research company.
The yellow metal, which is currently quoting at $812 an oz, hit the historic high of $1,011 an oz on March 17, 2008 on sustained safe-haven buying support from investors and consumers.
GFMS’ Executive Chairman Philip Klapwijk expects renewed price strength during this year on a combination of aggressive fiscal policy and historically low short-term interest rates in the US and other major economies.
Additionally, as foreign creditors grow increasingly alarmed over the burgeoning US fiscal deficit and the country’s monetisation of debt, there is a potential for official inflows into the US government debt market to weaken, an event that would substantially undercut support for the dollar. This, coupled with the ongoing environment of negative real interest rates should prove highly supportive of gold. Furthermore, as the global economic downturn continues to erode corporate earnings, interest in alternative assets may again be bolstered in the backdrop of deteriorating equity markets, the consultancy feels.
Once investors start redeeming their investments in other asset classes, chances are high that a large portion of the returns will come to gold. GFMS believes that this wave of new investments will possibly fuel the price rally.
A large section of investors, mainly in Europe and North America, has redeemed their other investments to cover losses elsewhere and meet margin calls.
Gold’s fundamentals, though, remained relatively neutral in the near term with the damage from weak demand being largely neutralised by restrained supply. Used gold forecast for the first half of this year, for example, has been broadly flat year-on-year and official sector disposals are expected to fall.
The yellow metal’s selling will be dominated by the signatories to the Central Bank Gold Agreement (CBGA) and buying by banks outside this group will remain limited with no hint of any purchases by big dollar holders in East Asia. On the demand side, high and volatile prices coupled with the slowdown in the world gross domestic product (GDP) growth is expected to cut jewellery demand by 11 per cent to its lowest level since 1989.
