Gold may test $450 in 2004

Precious-metals consultancy GFMS has forecast that the United States dollar gold price could recover from its current levels of just less than $400 a troy ounce to test $450/oz on global political and economic uncertainties in 2004, GFMS said in a statement on Thursday.

At 13.45pm, gold was quoted at a monthly low of $396,15/oz, down $4,73/oz from Wednesday’s New York close of $400,88/oz.

The consultancy believes the main driver of gold investment demand over the next year or so will be the economic developments in the US.

“The US fiscal and current account deficits, on top of eye-watering levels of consumer debt, create huge risks of another hefty slide in the US dollar, plus eventual recession and a slump in equity markets. Throw in instability in Iraq and you’ve got pretty good conditions for a further surge in [gold] investment.

“And don’t forget that the financial inflows into gold last year — which we estimate at a little over $10-billion, on a net basis — were still tiny compared to the potential sums available,” GFMS chairperson Philip Klapwijk said.

GFMS believes that the inflow of investor money in 2003 was the key driver of last year’s dramatic price rally in the US dollar gold price.

In early April, the gold price touched a 15-and-a-half-year high of $432,10/oz.

The report also sees dehedging by producers as having played an important role in supporting the gold price in 2003.

“We have seen dehedging drop by not far off a third, but that still left it at over 300 tons, its second-highest [to date]. Also timing was critical — prices in the second quarter last year were being hit hard by investors bailing out as the Iraq war premium imploded, yet that’s precisely when we saw some of the heaviest dehedging,” Klapwijk said.

Furthermore, GFMS have forecast that dehedging should rise in 2004 to somewhere between 340 and 400 tons. — I-Net Bridge

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