Gold set to breach $2,000/oz by year end; oil prices likely to touch $130 a barrel

The combination of jewelry purchases and central bank buying led to the ever increasing price of gold this year as well as the eurozone financial turmoil that has many concerned about the future of global finances. Many experts are now predicting a break through of $2,000 gold before year end.

Sep-15-11 5:17am

Gold prices are likely to break through $2,000 an ounce by year-end to new record highs, metals consultancy GFMS said in a report on Thursday, as inflation pressures in Asia and debt concerns in the West lead to a recovery in investment demand.

While investment was soft in the early part of this year, jewellery purchasing held up remarkably strongly as prices climbed to records, the company said, while central banks added to holdings and scrap supply remained muted.

World investment in gold is forecast to jump by more than a quarter year-on-year to 1,069 tonnes in the second half, largely on the back of soaring bar demand, and could push the market significantly higher.

“Apparently low investment figures were very much a first-quarter story,” said Neil Meader, research director at GFMS. “As soon as that Western disinvestment stops, you then have investment coming back at a time when the jewellery market is still strong and scrap is not doing a huge amount.”

A forecast for a hefty 43.5 percent year-on-year fall in implied net investment, chiefly reflecting activity in exchange-traded funds, on COMEX and in over-the-counter trading, was a reflection of profit-taking early in the year, Meader said.

But the low interest rate environment, poor confidence in paper currencies and concerns over sovereign debt are all still strong factors underpinning interest in gold. In the full year, world investment is seen rising 1 percent to 1,693 tonnes. Selling out of exchange-traded funds in the first quarter of the year, when the major gold funds recorded the largest quarterly outflow on record, has been partly reversed, suggesting appetite for the products has recovered.

Bullion bar buying, which has been consistently strong this year, rose 43 percent in the first half and is expected to stay strong in the remainder of the year, with GFMS forecasting a further 8 percent rise in the second half.

China, India snap up jewellery

Meader said strength in jewellery fabrication, which rose 7.5 percent to 1,037 tonnes in the first half, masked a more complex picture for the largest single segment of gold demand. The jump was concentrated in Asia, said GFMS, which was recently bought by Thomson Reuters. Excluding China and India, fabrication in the rest of the world fell 4 percent.

Indian demand climbed 52 tonnes, while Chinese buying increased by 40 tonnes. However, the high grades of gold used suggested that these purchases were made for investment purposes, rather than adornment, the firm said. “The buying that we are seeing there is in essence a form of investment,” said Meader.

In the full year, jewellery fabrication demand is expected to climb 1 percent to 2,032 tonnes. There was also persistent weakness in the volume of scrap gold being returned to the market, despite a rise in prices to a record $1,920.30 an ounce.

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