Leading metals consultancy, GFMS seems to have got a bit more bullish about gold.
In an update of its 2010 Gold Survey, out this week, the consultancy said it still sees prices "comfortably" topping $US1,300 an ounce later this year and possibly going higher in 2011.
On Tuesday of this week, Comex gold futures hit a new all time trading high of $US1,276.50 an ounce, topping the previous record of $US1,264.80 reached on June 21.
And overnight Thursday, another new high: December Comex gold settled a record high of $US1,273.60 an ounce in New York.
That beat the previous all-time high closing price of $US1,271.70, which came on Tuesday.
A new trading high of $US1,279.50 an ounce was touched overnight as well..
Previously, GFMS had seen prices reaching $US1,340 an ounce this year, then losing steam and easing.
"The weight of money entering the market from non-traditional investors should help gold rise to above the $US1,300 threshold, at which level we would expect collapsing jewellery demand and higher scrap supply to help put a brake on things," the company’s head, Philip Klapwijk wrote at the start of the year.
"Given its ever greater dependence on investment, the yellow metal will be highly vulnerable to sentiment or policy driven corrections, although the latter will probably first require either inflation to reach worrying levels and/or the bond market to choke on the record amount of government debt being issued," he said at the time.
Now, in the update issued this week, he says "I think we could easily see gold spike comfortably above $1,300 before the year’s out.
"We’ll probably get a fair bit of profit taking as we head into the New Year but I wouldn’t take that as a sign that the party’s over – further gains in 2011 are far from out of the question”.
The report devotes much space to the critical area of investment demand, as the consultancy sees this as the prime driver of the gold price’s rally during the first half of the year to record highs.
Mr Klapwijk noted “gold certainly lived up to its reputation as a safe haven in troubled times. Just look at the explosion in investor interest that followed the sovereign debt crisis unfurling in Europe.
"And it came as little surprise that we saw this interest strongest in arenas with a clear physical link, such as the ETFs, or in regions with memories of currency shock, such as German-speaking Europe”.
Other factors cited in explaining investor interest included a shaky outlook for the industrialised world’s economies, the maintenance of low interest rates and the still feared threat of future inflation.
One traditional driver of gold strength, US dollar weakness, proved contrary as that currency also benefited from a flight to quality and so frequently strengthened in tandem with gold.
GFMS said that "despite all this bullish talk of buoyant investment demand, it was, in totality, considerably lower than in the first half of 2009, when financial markets were still reeling in the aftermath of the Lehman collapse."
The consultancy said the ability of the gold price to manage record highs this year was to a large extent due to the firmer footing of falling scrap and recovering jewellery demand.
Mr Klapwijk added, “it’s hard to see how price gains can be truly sustainable when major fabricators like India and Turkey are net exporters of bullion, the position we were in early last year.
"However, fast forward to 2010, when Indian offtake jumped by around 170 tonnes, and you can immediately see how investment had a far firmer base to build on”.
Another factor that GFMS see as significant to the rally was the shift in the official sector to net purchasing in the first half, a development chiefly attributable to the collapse in selling by signatories to the Central Bank Gold Agreement.
“The material contribution from central banks’ net buying of around 90 tonnes in the first half was itself useful. But arguably of more importance was the broader shift in sentiment – investors for instance could be more confident of solid price gains, knowing central banks were in a sense on their side”, he said.
GFMS said that key to ongoing price strength are the extraordinary monetary and fiscal policies being enacted by the industrialised world’s governments in the face of sluggish economic growth, the spectre of a double-dip recession and already uncomfortably high unemployment.
"Such developments were seen undermining the value of equities or other conventional assets, ensuring the maintenance of low interest rates and stoking potential future inflation.
Mr Klapwijk said, “the US has so far managed to sidestep the sovereign debt crisis. But that could change in the future and that would undermine the dollar and boost gold”.
Gold’s fundamentals were also seen as being unlikely to hinder any rally as robust emerging market GDP growth meant jewellery demand would probably only fall appreciably and scrap rise if prices were to rally substantially.
Furthermore, the interplay of these two and the price were seen providing a good floor to the market.
This, plus further small scale gains in electronics demand, were seen as sufficient to broadly counter negatives such as the absence of substantial producer de-hedging, the slight rise in mine output and a return to modest net selling by the official sector.
GFMS said that the risk to its
