Average gold prices will jump nearly 10% this year and gain further in 2008 as a weaker dollar outlook, less aggressive sales by central banks and physical demand will boost investor interest, a Reuters poll showed on Wednesday.
The global poll of 33 analysts and traders conducted over the past month arrived at a median price for gold of $670 a troy ounce, up from an average of $612.10 in 2006 and about 3% higher than the figure from a poll in January.
Gold is forecast to rise to an average of $681.00 in 2008, up 4% from the January poll for the same year. That compares with a 23% surge in 2006 and 18% in 2005.
Spot gold was trading at around $665 on Wednesday.
Other precious metals are expected to perform more strongly than gold, with the average for silver seen surging by nearly 14% this year, platinum gaining more than 11% and palladium rising by over 13%.
"We believe the medium-term environment remains constructive for the gold price outlook," said Michael Lewis, global head of commodities research at Deutsche Bank in London.
"A further depreciation of the dollar, low real U.S. interest rates, the possibility of more skittish equity markets ahead as well as strong fabrication demand suggest to us that the recent correction in the gold price will be short lived."
Gold fell to a three-month low of $638.90 on June 27 before recovering, compared with last year's 26-year high of $730.
Sentiment was expected to be bullish as the metal was likely to remain a part of the portfolio of funds and investors.
"The forces that have driven commodity prices higher in the past couple of years remain largely in place," said Donald W. Doyle, Jr, chairman and chief executive of U.S.-based Blanchard and Company, a precious metals dealer.
"Global economic growth is strong, liquidity is plentiful, investors appear to still have an appetite for risk and the demand for commodities will continue to grow in emerging Asia as the region industrialises and wealth grows," he said.
Analysts said physical demand, which suffered last year because of volatile prices, was seen increasing due to a reduction in sharp price fluctuations, which might underpin the metal.
"From a fundamental perspective, fabrication demand has shown signs of stabilising and, barring another surge in price and volatility, we expect demand to remain positive over the year," said Suki Cooper, precious metals analyst at Barclays Capital in London.
Forecasts for continued dollar weakness, strength in oil prices, a tense geopolitical environment and expectations of gold sales by European central banks falling below their annual target of 500 tonnes remained positive for gold, but other factors had turned bearish, analysts said.
The pace of closing hedge positions that entailed gold sales for delivery at a future date was expected to slow down, while there had been some reduction in the metal held by exchange traded funds (ETFs) in recent months.
"If this were a mid-term school report for gold, it might have read -- Does well with limited resources, needs to pay better attention to what is going on," Ross Norman, managing director of TheBulliuonDesk.com, said.
Silver to Outperform
Silver is seen stronger than other metals, with the average 2007 price surging 14% to $13.30 an ounce. But it is forecast to fall to $13 in 2008, against its spot price of $12.95 and a 25-year high of $15.17 in May last year.
"Silver remains somewhat linked to the fortunes of gold but we believe increasing investor demand will see silver prices outperform gold over the next 6-12 months," said Daniel Hynes, commodities analyst at Merrill Lynch in London.
Analysts said silver would need support from investments in ETFs as the market was expected to end 2007 in surplus on rising mine supply.
Platinum is forecast to rise 11% to $1,267.50 an ounce this year before falling to $1,250 in 2008, but will still be above last year's $1,138 and the January's forecast of $1,125. Spot was last quoted at around $1,305, far below its record high of $1,395 in November.
Palladium was predicted to track other metals, with prices seen rising 13% to $363 an ounce in 2007 and then to $380 in 2008.