By Chris Flood
Tuesday, April 7th, 2009
Gold prices could “easily” re-attain the $1,000 an ounce level this year and could even push through the $1,100 barrier, setting a new record high, according to GFMS, the precious metals research consultancy which released its Gold Survey 2009 today.
GFMS said that it was “only a question of time” before investment demand proved sufficiently powerful to overcome weak fabrication demand, particularly in the gold jewellery market, and surging scrap supplies, the the twin obstacles which have managed to halt the advance in gold prices short of the $1,000 an ounce level.
Although the spur for safe haven buying of gold from concerns over the stability of the banking sector might wane as the credit crisis eases, GFMS said investors would increasingly focus on a new worry: the probable inflationary consequences of the fiscal and monetary policies being adopted by governments in response to the global financial crisis.
“Investors who are currently sitting on record amounts of cash will be looking for a secure inflation hedge for which purpose gold fits the bill perfectly,” said Philip Klapwijk, chairman of GFMS.
Inflows into the gold market reached $26bn last year, a relatively small amount compared to the flows into mainstream asset classes but enough to drive gold prices to record levels.
Mr Klapwijk said last year’s inflows could be “dwarfed” if gold’s appeal to investors widened substantially on the back of government’s willingness to attempt an inflationary solution to the current global economic crisis.
Warning that central banks would be slow to raise interest rates, especially while struggling to combat recession and rising unemployment, GFMS said the solidity of the US dollar was also likely to be questioned by investors concerned about the ability of the US authorities to finance the explosion in government debt
Following the collapse of Lehman Brothers in September of 2008, GFMS said there had been a ground swell in investment in physical gold, reflecting distrust in financial institutions, and general desire for wealth preservation, with this buying centred on western Europe and North America.
This desire for gold in physical form was illustrated by the 40 per cent rise in minting of official coins last year while gold bar hoarding rose 62 per cent.
GFMS said there had been an explosion of buying interest in gold last year but this had been offset by the general sell-off across commodity markets that was prompted by fears global growth would slow dramatically and the need to raise cash to cover margin calls or losses elsewhere.
“Without these outflow from the OTC and futures markets, chiefly from hedge funds, gold prices might well have achieved fresh highs in the final months of 2008,” said Mr Klapwijk.