(Reuters by Jan Harvey) - Gold may reach a record high above $2,000 an ounce in
late 2012 or early 2013, but the precious metal is nearing the end of a decade-long
run that has lifted prices by more than 600 percent, metals consultancy GFMS said
Gold has been a top-performing asset since 2001 as portfolio diversification, concerns
over sovereign risk and rock-bottom interest rates helped lift prices from a low
near $250 an ounce in 2001 to a peak above $1,920 in September 2011.
It is likely to surpass that level in the final quarter of 2012 or the first three
months of next year, GFMS said, potentially breaking through the $2,000 an ounce
"A combination of factors will ensure that sufficient demand from investors and
to a lesser extent official sector institutions comes into the market for it to
clear at higher levels," the company said in the second update to its Gold Survey
"Concern over nearly all currencies' long-term value remains acute, and this
includes the U.S. dollar, which to a large extent has found favor simply as the
'least bad' option, especially in light of growing fears over the break-up of the
However, a normalization of the broader financial landscape in the next few years
is likely to take some of the wind out of gold's sails.
"The report does acknowledge that the gold market is nearing the closing stages
of its decade-long bull run and that, once the macroeconomic backdrop changes and
investment in gold fades - probably some time next year - a secular retreat in the
price will unfurl," said GFMS, which is owned by Thomson Reuters.
For the first half, the company forecasts gold prices will average $1,640 an ounce,
close to current levels. A rising dollar and increased risk aversion, which in recent
months has pressured gold, could curb price gains in the short term.
In the second half, it sees prices at an average of $1,840 an ounce.
JEWELLERS, CENTRAL BANKS
GFMS expects jewelry demand to soften by 3.1 percent in the first six months of
2012 to 1,027 tonnes, in line with a 2.2 percent decline in overall demand to 2,199
Most of this decline will likely be due to softer demand from India, still the world's
biggest bullion buyer. The gold market is moving into a less auspicious year, GFMS
said, and rupee weakness has tended to negate dollar gold's declines.
China and Turkey are set to be the main drivers of jewelry demand, and the former
may overtake India as the world's biggest gold consumer in the first six months
of the year. Last year total Chinese gold demand reached 850 tonnes, GFMS said.
"In terms of calendar year 2011, India was ahead, but ... it does seem as though
China, in terms of our data for the first half, may just tip ahead," Philip Newman,
research director for precious metals at Thomson Reuters GFMS, said.
Official sector purchases, which are estimated to have leapt to their highest levels
since 1964 last year, are seen dipping by some 7 percent to 190 tonnes in the first
half, still an historically elevated level.
GFMS said last year central banks increased their gold lending to commercial banks,
which used the metal to raise U.S. dollars, apparently for the first time since
"We think this is probably the case as the decline in 'traditional' lending by the
official sector would have been exceeded by growth in volume of very short-dated
lending to commercial banks for dollar swaps purposes," said GFMS chairman Philip
Klapwijk. "Potentially this may also have occurred in 2010 too, but (it is) hard
Physical bar sales are expected to rise another 1.4 percent in the first half after
surging by more than a third last year to 1,194 tonnes. Demand for gold bars was
particularly strong in German-speaking Europe last year as the debt crisis bit.
"Not all areas of investment are expected to be buoyant," GFMS warned, however.
"Official coin and bar investment might continue to grow a fraction, but the implied
(investment) figure should swing to net disinvestment ... as a result of euro zone
travails, dollar strength and constrained liquidity."
World investment is expected to decline by some 250 tonnes in the first half of
2012 from the final six months of last year, to 680 tonnes. Gold's largest handicap
is likely to be the strengthening dollar, GFMS said.
On the supply side of the market, mine output is expected to rise 3.2 percent in
the first half of the year, although most new supply will come from existing, rather
than new, projects.
Gold scrap supply is seen dipping 3.1 percent, however, as most available material
will already have hit the market after a prolonged period of gold price strength.
New sellers may also be put off by expectations of higher prices, it added.
"Although the fundamentals call for far lower gold prices in the long term to achieve
balance, the market's shorter term foundations are not as shaky as might be supposed,"