GFMS, the world’s leading precious metals research consultancy, expects the gold price to continue to rise in the short term but warns that it’s unlikely that “dramatically higher prices” will be attained.
Launching the 43rd edition of its annual survey of the world gold market, Gold Survey 2010, GFMS chairman Philip Klapwijk said a “surge in investment” rallied the gold price to an all time high over US$1200 in early December.
“The more than doubling of investment in value terms to almost US$60 billion was partly due to familiar forces such as the dollar falling,” he said.
“However, it was powerful new drivers – we could cite here fears over quantitative easing, perhaps even more so counter-party risk as long standing financial institutions collapsed – that got interest really moving”.
He said that “looking ahead”, further price gains were thought to be likely as “the investment case was still perceived as strong, with for example all the major currencies now being questioned by investors, in large measure due to high and rising levels of government indebtedness, and longer-term inflation threats still a growing issue for some”.
Nonetheless he cautioned that with no immediate reason for fresh investment to flood in, the rally might “take a while to materialise” and GFMS had lowered its upside target “as the likelihood recedes that we shall see the financial conditions necessary to produce dramatically higher prices”.
“We’re certainly in the end-game now, although that could still take a year or more to play out. But after that, it’s difficult to see how we can avoid a hefty drop in prices if we want to boost jewellery and trim scrap to bring the overall market back into equilibrium”.