Gold to average $1800 this year despite big supply surplus – GFMS
Speakiing at the start of the Key Commodities Summit preceding the first full day of Mines& Money Hong Kong, Philip Klapwik, Global Head of Metals Analytics for Thomson Reuters GFMS, gave a positive assessment on precious metals prices for 2012, despite the recent volatility in the sector.
Given that gold is so dominant by value in terms of investment inflows into precious metals (around 87% compared with 11% for silver, 2% for platinum and less than 1% for palladium), Klapwijk devoted the major part of his presentation to the yellow metal.
Overall, he was positive relating to its price prospects this year. However, he did comment that there was the possibility that the price might yet test $1,600 on the downside before peaking perhaps at around $2,000 and averaging $1,800 over the year.
GFMS analysis suggested that global gold supply is increasing again after a bit of a hiatus. While much of the current supply increase relates to higher scrap sales, we are also seeing what he described as a secular increase in gold mine production as the higher gold prices have stimulated exploration and new mine development more than countering the declines in output from the world’s older gold mining operations.
While gold supply is increasing, the key areas of demand – notably in jewellery – are seeing a fall. Significantly higher gold prices have led to a downturn in jewellery demand, although perhaps not to the extent that might have been expected given the sharpness of the price increases over the past few years. He did expect, however, this decline in jewellery demand to continue this year, thus widening the already big gap between supply and demand.
While for other commodities one might expect this to lead to a sharp reduction in price, Klapwijk commented that gold is no ordinary commodity and that prices are sustainable despite the big supply surplus as long as investment demand, which GFMS sees as balancing the books, continues at current levels or even higher – and Klapwijk and GFMS do see this continuing with perhaps as much as $120 billion of investment purchases going into gold in 2012.
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