International investment bank Fairfax reports in its investment forecast, released last month, that continuing demand should keep the gold price high, but with seasonal weakness expected from February/March and prices picking up again from July/August. It reports that central banks are also expected to continue to raise their gold holdings.
The company predicts gold to range between $1 000/oz to a high of $1 250/oz in 2010.
Prices may have risen to high levels on speculation and dehedging but are now driven by the need to conserve monetary value in a world of depreciating currencies. Governments are concerned that the value of their paper is falling but they are mandated “to do whatever it takes” to save jobs, companies and property values.
Central banks have become net buyers of gold, reversing the trend to reduce gold holdings seen in recent years. Developing eco-nomieused mobile and semi mobile crusherss are increasing central bank reserves and balancing cash with gold to give a firmer base to their underlying asset value while the value of the US dollar looks uncertain.
Gold appears to have formed a base above $1 000/oz, according to traders, and may demonstrate that this is not a short price run led by dehedging or the unwinding of trading positions. International gold-mining company Barrick Gold has now bought out its gold hedge book of 5,4-million ounces, leaving earnings fully exposed to gold prices. The worlds’ third-largest gold producer, AngloGold Ashanti, next generation stone crushing technologiesalso reduced its hedge book by 20%, to 3,27-million ounces, in November last year.
Supply and Demand
The lowest gold production/supply in 13 years was seen in 2008. World mine supply rose by 6% in 2009 after three years of decline and this decline is not expected to resume until 2011. China is the main producer of gold, followed by Australia and then South Africa.
Scrap supply rose last year in response to high gold prices. This trend is likely to continue, particularly while some economies remain depressed, forcing people to sell simons 7 cone crusher drawings assets, such as gold jewellery.
On the demand side, jewellery production accounts for 54%, while electronics, dentistry and other industrial demand account for 11% of demand. India, China and the US are three major jewellery markets and account for 43% of global demand.
In 2009, electronics, dentistry and other industrial demand dropped by 17%, but is forecast to recover by 7,2% this year, in line with global industrial production growth.
Chinese investment and new jewellery demand should give good underlying support to the market. Jewellery demand is price sensitive and fell sharply last year but should recover as consumers get used to new, higher price levels.
Seasonal jewellery demand should be picking up, however. High prices and a weak global economy are likely to suppress demand. Investment demand continues to support gold prices and will help to offset the potentially weaker jewellery market.
Fairfax also reports that gold is a leading liquid investment, proven to be better than paper money when a financial crisis occurs. Other metals are also now seen as better representing value in a potentially inflationary environment. Gold and other metals have risen to high levels on Asian demand, investment and dehedging, but prices are now driven by the need to conserve value in a world of competing currency depreciation.
The company says that key western economies are now emerging slowly from the financial downturn, but the recovery is seen as fragile and most commentators expect interest rates to remain low to maintain some positive economic growth. Slow improvement in the US economy, with US interest rates forecast to remain low for an extended period, was reported at a recent US Federal Open Market Committee meeting. But, if the US dollar gains strength, China’s peg against the US dollar could prove unsustainable, slowing the recovery in both regions; and a slower China may cause greater economic upset within Asia and the global context.
Last year, China announced that it had bought 454 t of gold from other State-owned enterprises over a period of a few years, India bought 200 t of gold from the International Monetary Fund (IMF), Sri Lanka bought 10 t from the IMF and Russia confirmed the purchase of 30 t for reserves.