Commodity Online
NEW DELHI: Gold is the only commodity which thrived on the meltdown. In fact, the global economic crisis has come as a godsend for gold and the yellow metal is making use of the blessing in disguise to the maximum.

Following the boom caused by the meltdown impact gold prices may shoot up to over $1,000 per ounce in 2009.

According to a report by GFMS Ltd, gold could hit a record high this year, saying that the price will average a hefty $915 an ounce and could shoot as high as $1,080.

Last year the London-based GFMS was very cautious on the gold market, predicting that it could go bust in 2009 if investment demand dries up. But the dramatic upheaval in the global financial system has changed everything.

The main reason that changed the GFMS opinion is the response of governments to the crisis.

GFMS said it would not have suspected such remarkable government spending pledges, and the speed with which the US cut interest rates.

With the US and other governments pledging trillions of dollars in fiscal spending while central banks do everything they can to stimulate the economy and calm financial markets, the end result is likely to be inflationary pressure and a weak US dollar. Those traits are great for gold.

Right now, there are far more concerns about deflation than inflation. But investor demand for gold is expected to remain strong in this market as they look for a reliable store of value. Gold has been the best option in recent months.

How long this gold boom lasts depends on how quickly inflation takes hold and how long governments and central banks accommodate it.

The current boom in gold prices has been driven entirely by investment demand. That has disguised the fact that jewellery and fabrication demand have plummeted in response to high prices.

GFMS expects this trend to continue, predicting that jewellery demand will fall 11.1% in 2009 while net investment demand rises 89.4%.

Any weakness seen in demand is expected to be offset by weak supply. Overall supply is projected to drop 0.6% this year to 1,888 tonnes.

Mine supply has been fairly flat for a number of years, and GFMS expects that trend to continue. That is because the exploration boom of the last several years has turned up very few great discoveries, and now there is virtually no exploration going on because junior companies are hoarding cash and fighting for survival.

With few sources of new supply to speak of, GFMS does not expect that gold will fall back to its historic lows of around US$250 an ounce that were reached early this decade. But prices could sink back to the US$500 range if big gold holders such as the exchange-traded fund sell into the market.

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