Richard O’Brian, CEO of the world’s second largest gold producer, Newmont Mining, said at a conference in Indonesia’s capital Jakarta on Monday that the gold price could climb to $1,600 per ounce this year. Prices above that level were possible in 2012, given the increasing demand from emerging markets. The burgeoning Chinese and Indian middle classes will provide a particularly good market for gold. Despite his optimism with regards the outlook for gold prices, O’Brian did sound one note of caution.
Indians’ affinity for investing in tangible assets such as gold, silver and platinum jewellery has long been known, but demand from China is a relatively new factor in the gold market. India and China made up much of the global demand for gold in 2010, according to a recent World Gold Council report. Last year, the two countries consumed about 1,543 tonnes of gold jewellery, coins and bars. This development will most likely continue in the future, since the disposable incomes of the middle classes in both India and China are consistently growing. O’Brian told the news agency Reuters that the development of the gold price would also depend on future US dollar weakness. If the value of the greenback declined further against other major currencies, this would lift the (dollar) gold price.
The Newmont chief added that the yellow metal could reach $1,600 per ounce this year, and 2012 would likely see further gains in gold prices. Gold had a lot more upward potential, but O’Brian did sound a note of caution. If US officials become more serious about fiscal retrenchment, the US dollar could find more support, which would in turn negatively affect the gold price. Fiscal tightening in China and India in response to runaway inflation could also slow economic growth in these countries, leading to reduced precious metal demand.
The People’s Bank of China (PBC) reported this week that lending among Chinese banks significantly slowed in May compared with the previous year. Domestic financial institutions granted loans at a total volume of 551.6 billion yuan, far below the expected average forecast of 650 billion yuan. In May 2010, Chinese bank lending quoted at 639 billion yuan. This corresponds to a decline of approximately 13.7% year-over-year. The statistics office released a report on Tuesday showing that China’s consumer prices soared 5.5% in May 2011, reaching a new three-year high. The financial markets expect the PBC to further hike China’s key interest rate this year in order to curb inflation.
Observers seem convinced that China’s domestic banks will soon be approving far fewer loans to small businesses, and are said to be contracting their loan books in anticipation of an economic downturn. Many expect the combination of tighter fiscal policy on the part of the PBC, in combination with reduced demand for Chinese exports from Europe and America, to hurt China’s economy. The total amount of new loans amounted to 3.55 trillion yuan in the first five months of 2011. This corresponds to a decline of 12% compared with the previous year, and a 40% reduction in comparison with the same period in 2009.
