Gold may rise to $1,600 this year, survey shows

Predictions are being made that gold will break through the $1,600 mark before the end of the year as many investors continue to invest in gold on inflation fears.

By Claudia Assis
MarketWatch

SAN FRANCISCO (MarketWatch) — Gold is likely to break through $1,600 an ounce before the end of the year as investors continue to be concerned about inflation and loose monetary policy, metals consultancy GFMS said Wednesday.

“The prospects for gold prices this year remains bright,” said Philip Klapwijk, GFMS chairman, in a news release. “Investors continue to be concerned about the outlook for inflation, with governments in general showing little appetite to tighten monetary policy significantly.”

The spotlight on government finances is also likely to keep investors interested in the gold market. Growing acceptance of the metal’s high prices are expected to lift jewelry demand while keeping demand from scrap “muted,” GFMS added.

Gold for June delivery (GCM11 1,454.30, +0.70, +0.05%) gained $5.60 on Wednesday, trading at $1,459.50 an ounce on the Comex division of the New York Mercantile Exchange.

The metal hit a string of records last week, the latest on Friday, when it settled at $1,474.10 an ounce and traded as high as $1,476.20 an ounce. So far this year, gold has gained 2.7% and looks poised to extend a yearly-winning streak that started in 2001.

Investment demand for gold fell in 2010, however, but was still “comfortably” the second highest on record, GFMS said.

Holdings of gold-backed exchange-traded funds experienced their second highest annual gain, and sales of bars and coins surged, but investor interest in the futures market “was scaled back in 2010, having peaked early in the fourth quarter,” the consultancy said.

Jewelry demand partly recovered in 2010, as there were signs the gold market has adjusted to the higher prices. Scrap supply was little changed from 2009 despite gold’s gains in 2010.

“Much of the lift in jewelry demand was in fact concentrated in just India and China, which benefited from positive price expectations and a still robust economic backdrop,” GFMS said.

In the official sector, central banks became net buyers of gold in 2010, the first time since 1988. The net total would have been “considerably higher” without the International Monetary Fund sales program completed at the end of 2010, the consultancy added.

Mine supply gained last year, with all major gold-producing regions contributing to 2010’s higher totals, the first time since 1988, GFMS said.

Claudia Assis is a San Francisco-based reporter for MarketWatch.

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