UP, up and up, no slide for gold

NEW DELHI: Where is the yellow metal heading for? If the present trend is any indication gold may hit $1,100 mark this year itself.

According to Gold Fields Mineral Services (GFMS), the increasing gap between mine production and demand has been pushing gold price up.

GFMS, the London-based consultancy and research company, said the $1,200-mark may not be possible this year.

Last year, the metal breached the GFMS target of $1,000 an ounce and set an all-time record of $1,011.25 on March 17 this year.

According to a press note, the hefty correction in gold prices in the last few weeks did not come as a surprise as the momentum of the earlier gains looked unsustainable.

The current hesitancy does not mean that the bull-run has ended.

The research firm has also warned against irrational exuberance in the gap between mine production and jewellery demand, which is likely to jump from 100 tonnes to around 500 tonnes this year.

The report suggests that the long-term equilibrium price (the price at which the supply of goods matches demand) could be closer to the $600 an ounce-mark.

Last year, western investment fell to just under 160 tonnes as disinvestment in the over-the-counter (OTC) market, chiefly in the first half, countered much of the substantial inflow into other areas such as the physical market, exchange traded funds (ETF) and Futures.

Jewellery demand, however, recorded a year-on-year growth of 22 per cent in the first half, while the second half recorded a drop of 9 per cent with demand falling considerably in the fourth quarter.

This meant the full year’s demand was up 5 per cent at just over 2,400 tonnes. Producer de-hedging proved surprisingly strong in 2007, rising 9 per cent to reach a record of almost 450 tonnes due to a wave of book eliminations and partial buy-backs.

The bulk of the activity took place in the first half of the year. By year-end, the global producer hedge book stood at a about 800 tonnes.