Last Updated : 16 January 2009 at 23:05 IST

2009: Year of Gold!

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Commodity Online
MUMBAI: One thing is clear. Gold will be the ultimate winner in 2009, an year, according to pundits that will spell doom for several economies.

Eve as the world is fighting recession, gold industry is witnessing a flurry of activities with several mines resuming held-up projects and seeking to open fresh mines.

A lot of investments have been pumped into gold mining sector in past couple of months, anticipating a major gold rush in the coming days.

So, year 2009 may belong to gold. And, this high expectation is bound to make some impact on the yellow metal’s prices.

According to experts, gold is likely to become ore costlier this year and may touch an all-time high in the first half of 2009 due to expected surge in investments.

The main motivation behind this expected surge in investment is risk aversion and a desire to preserve wealth, as illustrated in its focus being physical bullion...or allocated metal accounts, said a report by GFMS Ltd, a leading precious metals consultancy, specialising in research into the global gold, silver, platinum and palladium markets.

The report said there has been several months of rocketing demand, mainly in Europe and North America, particularly from high net worth and retail investors, but it was masked by heavy fund redemptions as cash has been sought to cover losses elsewhere and meet margin.

Gold also benefited from concerns over the solidity of other assets, be that cash at a time of bank failures, equities as we head into a possibly deep recession or bonds as the threat of inflation looms.

Gold was almost $650 an ounce in August 2007 and breached $1,000 level an ounce in March 2008.

On Friday, GFMS released the Gold Survey 2008, a latest report on the gold market.

A key feature of the report is GFMS’ forecast that gold prices could achieve a fresh all time high in the first half of 2009 as net investment surges. The consultancy noted that there has already been several months of rocketing demand, chiefly in Europe and North America, from certain investors, primarily high net worth and retail, but this has been masked by heavy fund redemptions as cash has been sought to cover losses elsewhere, meet margin calls and so forth. Klapwijk added, “if it hadn’t been for this fund selling, we’d be easily back over $1,000 by now and, as soon as it quietens down, I’m sure a strong rally is going to emerge”.

GFMS believe that the main motivation behind this expected surge in investment is risk aversion and a desire to preserve wealth, as illustrated in its focus being physical bullion, often delivered, or allocated metal accounts. Gold was also seen as benefiting from concerns over the solidity of other assets, be that cash at a time of bank failures, equities as we head into a possibly deep recession or bonds as the threat of inflation looms. The latter was seen as particularly important, with Klapwijk commenting “we’ve seen some pretty extraordinary monetary and fiscal policies getting proposed by the US and other governments and this all has the potential in time to spark some serious, and maybe, sustained inflation. And nor can we ignore the likelihood of dollar weakness, perhaps even a dollar bust, as US creditworthiness gets called into question”.

The consultancy sees gold’s fundamentals as relatively neutral in the near term, with the damage from weak demand being largely neutralised by restrained supply. Scrap in the first half of this year, for example, is only forecast as broadly flat year-on-year and official sector disposals are expected to continue falling. The report still envisages that selling will be dominated by the signatories to the Central Bank Gold Agreement (CBGA) and that buying by banks outside this group will remain limited, with no hint made of any purchases by the big dollar holders in East Asia.

On the demand side, high and volatile prices plus the slowdown in world GDP growth were forecast to cut jewellery demand by 11%. Klapwijk added, “An 11% drop may sound restrained to some but demand in the first half of last year was fairly feeble and the actual tonnage we’re proposing for this year could easily be a 20-year low”.