Gold prices could reach $500 a troy ounce this year if the dollar continues to be forced down by concerns about the twin US deficits, said GFMS, the precious metals consultancy, on Thursday.
“We are reasonably sure that we will see a $470 or $480 gold price, and I think there is a distinct possibility that we could see $500 this year,” said Philip Klapwijk, executive chairman of GFMS, at the launch of the group’s 2005 gold survey.
He said it would not take long for gold to rise if there was a major fallout between the US and Iran over the Mideastern state’s nuclear enrichment programme.
Gold last hit $500 at the end of 1987, but it may struggle to reach that level this year because of its flat performance so far in 2005. Last year, gold in US dollar terms rose almost 13 per cent.
Bullion was quoted at $432.20/$432.90 a troy ounce in London afternoon trading, in line with its late quote in the previous session, but down about $24 from the
16-year peak it reached in early December 2004.
Mr Klapwijk said it was unlikely that gold prices would fall much below $400 this year, although any move below this level would be triggered by a sharp rise in the dollar and by higher US interest rates.
Despite gold’s long-perceived allure as a safe haven in times of trouble, its fortunes are closely aligned with the movement in the US dollar. Mr Klapwijk said there was a 0.86 inverse correlation between gold and the dollar last year, which indicates that the dollar price move was responsible for 86 per cent of gold price moves in 2004.
GFMS said gold investment fell last year, despite the launch of two gold exchange traded funds (ETF) in the US last year. It said the major reason for the drop in gold investment was the exit of funds in gold futures traded on Comex in New York and the Tokyo Commodity Exchange.
The consultancy estimated that investment in gold ETFs, which were first launched in January 2003, equated to 250 tonnes at the end of January.
Mr Klapwijk said gold was likely to remain in focus, as the commodities sector was still attracting strong investor interest.
GFMS said gold production dropped five per cent to 2,464 tonnes last year, its lowest level since 1996, but it is expected to increase again this year by about 100 tonnes. The drop in output was due to declines in production for the traditional big four producers – Australia, Canada, South Africa and the US.
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