LONDON (Commodity Online): The gold price has averaged approximately US$920/oz over the past few months, with a brief surge back above the $1,000/oz mark in February. A low of US$870/oz basis both fixes was recorded on 20th April and since then gold has recovered to trade within a rough US$870-US$990/ oz range.
The last three to four months have seen both high levels of investment and, countering this, periods of extreme weakness in fabrication demand coupled with massive flows of scrap back into the market. The latter has demonstrated the ability of gold’s supply/demand fundamentals to check investor-driven moves in the price.
According to GFMS, the growth in gold investment this year has been stimulated by developments in both the macroeconomic backdrop and in financial markets. The global economy is set to contract for the first time since World War II, with the advanced economies expected to perform the worst. The conditions of banks and in financial markets have emained equally dire, with a further thirty-three US banks collapsing since the start of the year.
In response to this calamitous situation, the monetary and fiscal authorities in both advanced and developing countries have been highly aggressive in their use of stimulative policies. Bail out packages and economic stimulus plans have now totalled in the trillions of dollars, with the most ambitious efforts being undertaken in the United States, where President Obama’s US$787 billion stimulus package was signed into law in February.
Similarly, central banks have attempted to thwart an economic downturn and potential meltdown in the global financial system by pursuing policies of “quantitative easing” and by slashing short term interest rates to nearly zero or historic lows. In this regard, perhaps the most significant event that has concerned investors and thereby buoyed the near to longer term outlook for gold prices was Chairman Bernanke’s 18th March announcement that the Federal Reserve would begin buying longer term US government bonds, effectively monetising US debt.
These and other measures have led to a further widening of gold’s investment base during the first four months of 2009. In looking forward to the coming months, GFMS’s Base Case scenario sees investor interest in gold supported this year by the ongoing global economic recession and policy responses to this, in particular very low short term interest rates and, in several of the major economies, ‘quantitative easing’.
Under this scenario too, investors’ concerns over the stability of the financial system are assumed to remain at a historically high level, although they should tend to wane somewhat over time. Likewise, the performance of traditional investments such as stocks is expected to improve as we move deeper into the forecast period and the global economy embarks upon a sustainable recovery.
Against this backdrop, investment in gold is expected to remain strong during much of this year and the price as a result is forecast to rise by 7% to its highest annual average on record (i.e. US$935/oz).
Courtesy: www.gfmsworldgold.com
