$2,000 an ounce for gold is now within sight
Garry White, 18:26, Sunday 18 September 2011
Gold slipped below $1,800 an ounce last week and equities rallied. As investors now look for more risk in their portfolios, has the gold price finally hit its peak?
The increasing appetite for risk came as the European Central Bank said it will co-ordinate with the Federal Reserve to lend dollars to eurozone banks. However, the European debt crisis has still not moved into its endgame.
Brokers certainly believe the pullback is a blip.
"We do not expect the price of gold to drop much under the $1,800 a troy ounce mark, though, as the market develops a strong physical buying interest in gold at around this level," Commerzbank (Other OTC: CRZBF.PK - news) said.
"Furthermore, uncertainty persists: according to reports in the media, Italy now risks a downgrade of its credit rating."
HSBC (LSE: HSBA.L - news) agrees. "We believe gold's 10-year bull market remains firmly intact, despite high volatility," analyst James Steel said as he raised its forecasts for the gold price. "The eurozone debt crisis, currency wars, and deep uncertainty among investors are among the factors driving prices higher," it added.
The bank raised its 2012 average price forecast to $2,025 from $1,625 and its 2013 view to $1,850 from $1,550. The new long term price forecast was increased by $125 to $1,500 an ounce.
"As central bankers and other policymakers run out of options, investor disquiet is increasing and paper markets look increasingly uncertain," Mr Steel added. "The possibility that government remedies for debt problems will indirectly lead to higher gold prices through inflation is also encouraging investment in gold."
Last week also saw the publication of the quarterly Gold Survey from precious metals consultancy GFMS, in which it predicted prices would hit $2,000 before the year end.
"Given strong demand for bullion from the public and private sectors … the relatively constrained increase in scrap supply and the 'stickiness' of jewellery demand in the fact of higher gold prices, we can easily envisage gold breaking through the $2,000 market before year-end," GFMS said.
The survey revealed that central banks had turned net buyers of gold with a vengeance in the first half of the year. Official sector purchases rose to a net 216 tonnes almost triple the figure seen last year. This is flattered by the fact that the International Monetary Fund completed its sales programme in December 2010.
GFMS expects that central banks will purchase a net 336 tonnes in the full year, which will be the highest annual figure since the collapse of Bretton Woods 40 years ago.
RBS (LSE: RBS.L - news) also released its Commodity Companion last week and it advised maintaining exposure, despite saying that the price could hit its peak relatively soon.
"The concerns that have propelled gold to its current levels remain relevant and are unlikely to disappear in the near term," the analysts, which are headed by Nick Moore, said. "Given acute financial market uncertainty, it is hard to be too bearish towards gold in this market and we continue to advocate maintaining exposure."
The team also predicted that the price would hit $2,000 as the gold gifting season is about to begin. "We now think the $2,000 an ounce milestone will likely be reached within the next few months."
However, there was a note of caution. "We maintain the view that gold is richly priced and current and higher levels are unsustainable on a longer term horizon. The $2,000 an ounce marker could well prove to be the high water mark for the gold price," Mr Moore said.
"Gold is in a fundamental supply surplus and investors are being asked to absorb an ever rising amount of metal (particularly when measured in dollar terms) to balance the market."
Indeed, GFMS revealed that there had already been demand destruction caused by high prices.
Total (Euronext: FP.NX - news) global investment in gold dropped 24pc in volume terms to 624 tonnes in the first half, although in value terms investor demand was only slightly lower year-on-year, slipping 5pc to $29bn.
Any strengthening of the dollar would also hit the price but it looks like $2,000 an ounce is now within sight.
= Silver shines as gold loses lustre among investors =
Silver has risen the most of all commodities over the last 10 years, new research from Lloyds TSB (LSE: LLOY.L - news) shows.
Silver has risen 885pc over the last decade, Lloyds TSB Private Banking's Commodities Monitor indicates, out-performing gold's 569pc leap. Copper was the third best gainer, rising 527pc, with tin prices up 524pc.
"In addition to its position as a safe haven investment, high demand for industrial uses has also contributed to the strong rise in the price of silver," it said.
= De Beers to move its sales operation to Botswana in a 10-year deal =
De Beers, the world's largest producer of diamonds, has agreed to move its sorting and sales operation to Botswana from London by the end of 2013. Sales had been undertaken in London since 1888.
The move is part of a 10-year deal signed with the Government of Botswana in Gaborone. The deal secures the company's access to diamonds from the country, which produces more diamonds than any other.
"With diamond demand and prices continuing to grow, DeBeers has secured long-term, uninterrupted access to the largest supply of diamonds in the world," the company said.
As part of the agreement, Botswana will sell 10pc of local production to the market for the first time, as a way to provide the nation with its own "price verification system."
Botswana produces about 21pc of global diamond mine output and 67pc of De Beers' output. The value of diamonds plunged during the recession, slashing Botswana's major source of revenue.
Prices have bounced back since then, but Firestone Diamonds (Frankfurt: 764519 - news) said last week that turmoil in the financial markets had caused prices to slump over the last two months.
Miner Anglo American owns 45pc of De Beers, the Oppenheimer family owns 40pc and the Government of Botswana has 15pc.
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