Gold Prices as Investment Boom: Gold Survey 2009
The 42nd edition of their authoritative and comprehensive annual survey of the world gold market, at events in London, Toronto and Johannesburg. The following details some of the highlights of the Gold Survey from the brie?ng given at the London launch by Philip Klapwijk, chairman of the independent precious metals research consultancy.
A key feature of the report is the prospect for the gold price in the coming months and this the consultancy believes could easily re-attain the $1,000 mark and may well push up towards and perhaps even through the $1,100 barrier. As Klapwijk commented, “the price may have pulled back a fair bit from the February highs but that was largely just the market’s reaction to jewellery demand crumbling and scraps booming. It’s far from game over for investors and it will be that crowd which sets the price alight”.
The report singles out the ?scal and monetary policies currently being enacted, especially by the US administration, as the root cause of gold’s potential, through their ability to generate in?ationary pressures. GFMS also expect central banks to be reluctant to raise interest rates whilst the prospects for economic growth are shaky and that the solidity of the US dollar has to be called into question, chie?y as a result of doubts over others’ desire or ability to continue ?nancing an explosion in US government debt.
Strength in investment will certainly be needed to overcome weakness in the fundamentals, with Klapwijk adding, “so far this year, we’ve seen times when major fabricating countries like Turkey have been exporting bullion because jewellery demand had collapsed and scrap was so strong. There’s no way that’s sustainable even in the medium term and I’d argue that’s the main reason the rally this year failed in the $980s”.
The consultancy, however, cautioned that it may well not be a straight line rally as a summer lull or the need for in?ationary pressures to build could mean sub-$900 prices in the short term. The Gold Survey details a similar complex path last year as heavy net investment and record prices highs in the ?rst quarter, on the back of surging oil prices, a weak dollar and ?nancial turmoil such as the collapse of Bear Stearns, was followed by periods of heavy selling through into the fourth quarter. Much of this was ascribed to the general sell off in commodities as economic growth foundered, a turnaround in the dollar and, towards the end of this phase, funds being obliged to sell in order to cover losses elsewhere, to meet margin calls and so forth. In the ?nal four months, GFMS noted a ground swell in investment in physical gold, re?ecting distrust in ?nancial institutions, especially after the collapse of Lehman Brothers, and a more general desire for wealth preservation, with this buying centred on western Europe and North America.
This desire for investment in physical form was illustrated in the 40% rise in of?cial coin minting – the only area of fabrication to register an increase in 2008 according to Gold Survey 2009. In contrast, jewellery demand fell by just over 10% in response to high and volatile prices and the slowdown in economic growth. The year was far from uniform, however, with Klapwijk adding, “jewellery demand came back in force in the late summer as prices sank through the $800 mark, and even more so as we headed for $700.
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