[miningmx] — GFMS metals consultancy’s Paul Walker has tempered his firm’s
optimism about the shorter-term prospects of gold with a warning that the metal
could be trading “well south of $1,000′ in the not-too-distant future.
He based this on his view that the demand for gold will not be sustained at
present price levels once real interest rates start returning to positive territory.
Walker gave a presentation in Johannesburg on Wednesday on the release of
Thomson Reuters GFMS’ latest authoritative annual review of the gold market. At the
presentation, he said the biggest determining factor in where the price of gold was
heading was the appetite of investors to account for the 200-odd tonnes of the
commodity that producers were delivering to the market every month.
“This market is going to stand and fall at what individual investors decide to do. Don’t
put much weight on what the central banks are up to,’ he said, pointing to the
fact that official sector purchases accounted for less than 12% of total demand last
year.
In 2011, gold miners delivered 2,818t of the total supply of 4,486t. The balance was
accounted for by scrap sales. On the demand side, jewellery and physical bar
investments made out a combined 3,182t, with an additional 786t towards other
methods of fabrication. Central banks bought 455t.
Walker said the supply from scrap sales should start to come very close to meeting
the demand for fabrication, implying that investors, and to a lesser extent central
banks, would have to meet the supply from gold miners.
“Virtually every single ounce produced goes into investors’ hands,’ he said.
“Around 200t go into the market every month and not into fabrication. Investors will
need to continue to take this off the market.’
Walker said this scenario could be sustained for the next six to 12 months, but
would change once real interest rates start to rise.
In what he described as “Paul Walker’s string theory of the world’, he said property
markets were at first the beneficiary of low or negative interest rates, followed by
equities and gold.
“This is all about the search for yield,’ he said. “The glue holding this together is
negative real interest rates.’
Asked where he thought gold could turn, he said it would depend on how quickly the
owners of gold would return their holdings to the market. The supply of existing
stock, together with new supply from miners, could cause the price of gold to head
“well south of $1,000′, he said.
RALLY TOWARDS $2,000
Head of Metal Analytics at GFMS, Philip Klapwijk, said gold could push lower from its
current levels of around $1,600 to $1,550 within the next month or two.
Despite that, GFMS is bullish for the medium term. “We could easily see last
September’s record high being taken out, and a push towards $2,000 is definitely on
the cards before the year is out – although a clear breach of that mark is arguably a
more likely event for the first half of next year.’
One of the main drivers of this expected price push was expected to be the
resumption of acute fears over Eurozone sovereign debt, with Spain set to be the
new area of concern. Moreover, it was thought that over the next few months the
US recovery will begin to falter and this will force the Federal Reserve into taking
additional monetary policy measures.
