Expect higher gold prices and increased investment demand. That’s the message from the GFMS Gold Survey 2011, an annual report looking at global supply and demand for the yellow metal.
In 2010 the demand side of the equation is reflected by increased holdings in gold ETFs and also, a surge in demand for gold bars and coins, GFMS said in a news release. The “official sector” including central banks was a net buyer for the first time since 1988. Investor interest in the futures market declined.
Of note, jewelry demand is stabilizing in India and China as consumers adjust to the higher prices. However, consumers in the US, European Union and the Middle East have not adjusted as well; scrap supply exceeded jewelry consumption in 2010.
But, even increased production and a decline in miners de-hedging did not dampen investor demand.
Philip Klapwijk, chairman of the precious metals consultancy said “the prospects for gold prices
this year remain bright.” He points to investors’ concerns about inflation and continued low interest rate environment as two factors lending support to the market. “Overall, we would not be surprised to see gold break through $1600 before the end of the year, he said.”
Several of these themes—increased investment demand and production, net decline in jewelry demand—were echoed in an earlier report from the CPM Group's Gold Yearbook 2011, another independent research firm.
One to watch: the industry trade group, World Gold Council is expected on April 19 to release its Gold Investment Digest, a quarterly analysis of gold price performance on an historical basis.