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Gold May Rise to $1,200 an Ounce, Exceeding Record, GFMS Says

April 9, 2008 at 19:05 by Mario

Gold may rise to $1,200 an ounce this year, exceeding the record, as investors seek a hedge against credit-market turmoil and mining companies fail to keep up with demand, London-based researcher GFMS Ltd. said.
Buying by jewelers, the biggest users, will keep the price from falling below the “the high $800s or perhaps even over $900,” GFMS said in a report released today. Gold has climbed 8.7 percent this year, rising to a record $1,032.70 an ounce on March 17 after Bear Stearns Cos. accepted a buyout from JPMorgan Chase & Co. to avoid collapse.
“We’re looking at a peak of $1,100 and $1,200,” GFMS Executive Chairman Philip Klapwijk said in a phone interview from London yesterday. “It’s more likely that 2009 rather than 2008 will be the peak for gold.”
Investment demand that fell 61 percent last year will “soar in 2008, driven by a major growth in demand from funds and private investors that will in turn be fueled by ongoing financial market instability and heightened credit concerns,” GFMS said in the report. Germany is the largest “retail” investment market for gold in Europe, followed by Switzerland and Austria, according to the report.
“Gold’s zero or limited counter-party risk has obvious attractions at a time when the threat of bank failures and low interest rates make cash a less attractive alternative,” GFMS said. “The task that investors will face should be made easier by the lack of a supply surge in most areas.”
Gold, now trading at about $907 an ounce, has climbed for seven years. “We’re a bit nervous about some very aggressive talk that we hear in the market, people are saying it’s going to $2,000,” Klapwijk said. “There is an element of a bubble appearing, certainly above $1,000 an ounce.”
Buying Slumps
Investor buying slumped last year as some unidentified institutions sold the metal in the over-the-counter market, especially during April through August, GFMS said.
Mining supply fell to an 11-year low last year, led by declines in six of the 10 largest producing nations, including South Africa and the U.S.
China overtook South Africa as the largest gold producer, with output gaining by 13 percent to 280.5 metric tons while South Africa’s production dropped 8.7 percent to 269.9 tons, according to the report. Caps on electricity supplies may reduce South Africa’s gold production another 10 percent to 15 percent this year, GFMS said.
Production Declines
The Grasberg mine in Indonesia, owned by Phoenix-based Freeport-McMoRan Copper & Gold Inc., was the largest gold mine in 2007, replacing Newmont Mining Corp.’s Yanacocha deposit in Peru.
Central banks and other governments sold a net 481 tons of gold reserves, up 30 percent from 2006, the report said. Governments that purchased gold included Qatar, Kazakhstan and Jordan, GFMS said.
Gold demand from jewelers increased 5.1 percent last year to 2,401 tons, with most of the gains occurring in the first six months as prices stabilized, GFMS said. After declining 22 percent in the fourth quarter from a year earlier because of higher prices, jewelry purchases may slip below 2,000 tons this year for the first time since 1988, GFMS said.
Manufacturing in Italy, the world’s fourth-biggest market for gold jewelry, slumped for a ninth straight year, even as use climbed in India, China and Turkey, the world’s top three markets, according to the report. For gold jewelry consumption, China overtook the U.S. as the world’s second-biggest market after India, according to GFMS.

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