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Demand for jewelry to push gold over 500 Original Source Link: (May no longer be active)
http://ca.today.reuters.com/news/newsArticle.aspx?type=businessNews&storyID=2005-09-14T094406Z_01_HO434951_RTRIDST_0_BUSINESS-MARKETS-GOLD-SURVEY-GFMS-COL.XMLhttp://ca.today.reuters.com/news/newsArticle.aspx?type=businessNews&storyID=2005-09-14T094406Z_01_HO434951_RTRIDST_0_BUSINESS-MARKETS-GOLD-SURVEY-GFMS-COL.XML
Robust jewel demand, investment to boost gold to $500
Wed Sep 14, 2005 5:45 AM EDT
By Clare Black
LONDON (Reuters) - Buoyant demand for gold jewelry boosted the metal's price in the first six months of 2005 and renewed investor interest should drive it up to $480 an ounce by year end, precious metals consultancy GFMS said on Wednesday.
GFMS said in a half-yearly update to its Gold Survey 2005 that it expected gold to clear the $500 hurdle -- for the first time since 1987 -- some time in the first half of 2006.
Bullion is only some $10 away from its highest level in 17 years, having set a new peak for 2005 on Monday at $451.50 a troy ounce. Spot gold was trading at $446.30/$447.0 at 0715 GMT.
The survey noted mostly lackluster investment demand from funds and private investors in North America and Europe during the first half of the year, but highlighted robust fund activity on the New York COMEX gold futures market.
Investors are now holding near-record levels of exposure to the metal.
"The gold price should hold firm in the coming months on the back of buoyant fabrication demand, before investment returns in force to drive the price toward the $480 mark before the year is out," GFMS executive chairman Philip Klapwijk said at a seminar in London.
"This is not expected to prove the market top, however, with GFMS expecting gold to clear the $500 hurdle sometime in the first half of 2006."
Shorter term, GFMS expected funds to sell some of their long positions on COMEX, which would weigh on prices, but it then predicted investors would increase their exposure.
They would be encouraged by healthy physical demand, renewed dollar weakness and the underperformance of more traditional assets like stocks and bonds which would push investors more toward alternative assets like commodities.
Mounting inflation concerns due to the ongoing impact of $70/barrel crude oil and big rises in oil product prices in the wake of Hurricane Katrina, coupled with ongoing geopolitical concerns, would also be supportive to gold.
SPARKLING JEWELRY
Gold fabrication was forecast to rise by 6.8 percent, or 200 tons, in 2005 to a four-year high, and this was despite a rise in dollar-gold prices of nearly seven percent year-on-year.
The consultancy saw higher usage thanks to good economic growth from countries that may typically have shied away with prices above $400.
"What's of interest is sentiment. Prices around $430 were seen as quite 'normal' and sustainable. So, any dip below this typically led to bullion dealers seeing a flurry of buy orders materialize," Klapwijk said.
Gold spent years under $300 an ounce, before staging an impressive rally in 2002 that has seen prices gain over 60 percent.
Demand from the world's largest gold consumer India hit record highs in H1 2005, with jewelry use up by nearly 50 percent versus the first six months of 2004.
GFMS said the Middle East, in particular Turkey, also saw buoyant demand, while Europe was the only major region to see a first-half decline in jewelry offtake.
But the consultancy expected a very different outcome in the latter half of the year as sharply higher gold prices were seen crimping fabrication by one percent.
Global mine output was flat in H1 2005 at 1,172 tons, with gains from new projects eliminated by a substantial 15 percent year-on-year drop in top producer South Africa.
Output was forecast to rise three percent during the second half, with full-year growth seen at just over one percent.
CENTRAL BANKS SELL
Supply from central bank sales reached record levels.
Official sector sales reached their highest half-yearly level ever recorded by GFMS in H1 2005 at just over 400 tons -- more than twice the total of the first half of 2004. Net sales for the full year were expected to rise 40 percent.
Much of this was attributed to Europe's Central Bank Gold Sales Agreement, which limits official sales by its signatories.
Producer buybacks - which were another key factor behind rising gold prices last year - were forecast to slow from the record levels of 2004.
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