In an update to its April 2012 Gold Survey, GFMS--a research consultancy unit of Thomson Reuters--said it is firmly bullish regarding gold's price trajectory. Investment demand is forecast to be the main driver behind the price rise. In particular, GFMS tipped central bank gold purchases and purchases by Exchange Trade Funds as key factors that are likely to push gold to renewed highs.
The report comes days after spot gold rallied in response to comments made by U.S. Federal Reserve Chairman Ben Bernanke on Aug. 31, which--though not explicitly laying out plans--indicated that the door is wide open for quantitative easing from the U.S. should the economy fail to recover effectively soon. Gold was trading at $1,691.70 a troy ounce Tuesday, broadly flat compared to Monday, but up 2.2% since Aug. 30, the day before Mr. Bernanke's speech.
The consultancy said strong investor demand, particularly from central bank purchases, should result in higher gold prices by the end of the year. "Gold prices should rally, if in a volatile manner, to challenge $1,800/oz before year-end and to trade above $2,000/oz in the first half of 2013 before starting a secular decline later that year," said Philip Klapwijk, global head of metals analytics at the firm, although he noted that he didn't expect gold prices to surpass the 2011 high of just over $1,900/oz before the end of 2012.
Gold demand is forecast to rise 0.1%, or 6 million tons, to 4,509 tons in 2012, buoyed in part by a 3.1% rise in worldwide gold investment to 1,621 tons of gold, or $90 billion worth of gold. Worldwide gold investment, both in volume and value, is forecast to rise more in the second half than the first half as expectations of further economic stimulus packages fan inflation concerns and spur investors to flock to gold as a safe-haven investment.
Meanwhile, gold demand stemming from fabrication and jewelry is forecast to drop 4.4% to 2,758 tons in 2012, largely as a result of a drop in jewelry demand during the first half as India pared back its gold jewelry purchases following the depreciation of the Indian rupee against the U.S. dollar, which caused gold prices to reach very high levels in local currency terms.
On the supply side, a 0.9% rise in mined output to 2,848 tons of gold in 2012 is forecast to just offset a 0.6% decline in old gold scrap to 1,661 tons.
GFMS said gold prices remain well-supported by central bank buying on price dips. It expects the trend to continue at a more muted rate in the second half with net gold purchases of 220 tons from both developed and emerging nations compared to 273 tons in the first half of the year. Central banks have been seeking to diversify their reserves in response to concerns about a weak U.S. dollar.
The consultancy said it expects that gold prices will likely continue rising this year, albeit in volatile trade.
"I think we're on pretty safe ground saying that we've already seen the lows for the year and that firmer prices, particularly towards year-end, are on the cards," said Mr. Klapwijk. Nonetheless, he emphasized, it is unlikely to be plain sailing for the yellow metal, with choppy waters expected during the journey upward.
"We're also expecting a bumpy ride looking ahead--any intensification of the euro-zone crisis or dashing of hopes for further easing by the Fed and you could easily see the rally derailed for a while."
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