Gold Prices Already Peaked in 2011: Report

Gold prices should remain high this year but are unlikely to rise above the record levels reached in 2011, according to CPM Group.

Gold bars
Tom Grill | Iconica | Getty Images
Gold bars

That is the key takeaway from CPM Group’s latest forecast—“Gold Yearbook 2012,” its annual analysis into the supply and demand factors driving the global gold market. CPM Group is an independent commodities research and investment banking company, and its annual forecast is widely followed by the gold market.

Increasing supply versus a bigger global pool of investors for gold are combining to put a floor under the market, and prices are expected to remain firm, without the parabolic rallies of the recent past.

“We are looking for the price to stay above $1,500 [an ounce] this year and above $1,400 over the next few years,” says Jeff Christian, Founder and Managing Director of the CPM Group.

If CPM Group is right in its forecast, that would put gold into a consolidation phase after a decade of continuously higher prices.

Last year, Christian correctly forecast the price action for the precious metal even as gold reached its nominal record high of $1,920.70 on an intraday basis in August, 2011. At the time, the consensus was for the metal to reach higher highs.

“We reached the cyclical peak later than we thought but by the end of the year the price was down and (gold) has been trading sideways,” says Christian.

The CPM report notes that while some of the underlying fears that drove investors into gold are still present including, uncertain economic conditions. However, fears that the global financial system will collapse have subsided.

That in turn has shifted investors towards a “buy the dip” and “sell the rally” mentality and away from the type of panic buying seen last summer.

Overall demand remains strong but declining in its strength. According to CPM’s release, central banks continued to be net buyers of gold last year adding 12.7 million ounces of the yellow metal to its inventories or about 2.6 million ounces less than were added in 2010.

While investment demand remained at historically high levels, signs of an aging bull market were clear with net additions to private investor holdings at “34.3 million ounces in 2011, down 5.8 percent from 2010 levels.”

Despite the record high prices last year, demand for gold jewelry was higher, offsetting in part, increased supplies from mining operations. Looking ahead, China and India are expected to continue to buy gold in 2012 at the same levels seen in 2011.

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