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Gold Price Could Rebound to $1,000/oz, Says CPM Group

March 26, 2009 at 11:51 by Mario

Growing economic uncertainty related to the current global economic recession as well as the prevailing volatile financial market conditions, which have so far influenced investors to buy gold, could set off another gold market rally that could take the price above the $1,000/oz mark, according to CPM Group’s Gold Yearbook 2009.
The detailed analysis of the gold market, which is bounded into a hard-cover book, has been released Tuesday by the CPM Group — the New York-based metals consultancy.
“Gold, which has played a monetary role for centuries, appears to be enjoying a rehabilitation of its historical might and role as a financial asset, as investors look toward safe haven assets in these volatile times,” CPM noted.
In the Yearbook, CPM discussed the concept that gold, which is now in the ninth year of a major period of historically high investment demand for gold and consequently rising prices, is undergoing a secular upward move in both investor interest and prices. Yearbook 2009 puts forth the thesis that the rise in investor gold buying and prices since 2001 reflects a restoration of gold as a significant component of financial assets worldwide.
“The gold market appears to be in the early stages of a secular, long-term shift in which gold is reclaiming at least a portion of its status as an important financial asset used by institutional and individual investors, and governments worldwide as a form of savings and a financial asset,” CPM noted in the yearbook. “Gold is moving back to the status it had for most of the past five millennia. Gold has lost status as a financial and monetary asset over the past four decades. Now it is reasserting itself.”
In discussing gold supply and demand fundamentals, CPM has estimated that total supply of gold rose 3.3% to 114.8 million oz in 2008 from 111.1 million oz in 2007, and could rise further to 118.6 million oz in 2009.
Mine output declined further last year, reaching 55.3 million oz from 58.7 million oz the previous year, said CPM, adding that mine production may rise to 57.2 million oz this year.
Secondary supply of gold, recovered from various types of discarded jewelry and other scrap, soared to 38.5 million oz in 2008 from 32.4 million oz in 2007 and is projected by CPM to rise further to 40.5 million oz this year. Sales from “transitional” economies is pegged at 21 million oz.
Fabrication demand for gold has declined overall since 2001, partly reflecting the rise in gold prices. Last year, fabrication demand — consisting mostly of jewelry, electronics, dental and medical uses — declined to 77.4 million oz from 82.9 million oz the previous year. This year total demand is projected to fall further, to 71.3 million oz, with jewelry demand declining to 56.5 million oz from 60.8 million last year. Industrial demand, meanwhile, could decline to 14.8 million oz this year from 16.6 million oz last year.
Turning to gold sales from central banks and other government sources, the CPM Yearbook noted that in 2008 official sales fell to 5.8 million oz from 15.9 million oz in 2007. This reduced the total available supply to the gold market to 120.7 million oz from 127.0 million oz in 2007. This year official sales may be no more than 5 million oz and total available supply may be 123.6 million oz.
“Most central banks may have sold much of the gold that they have wanted to sell over the past two decades,” said CPM. “They may sell much less going forward and are likely to sell less given current economic conditions. The Gold Yearbook discusses official transaction trends and also speaks to the recent proposal to sell gold by the International Monetary Fund.”
According to CPM, investors continued to buy large quantities of gold last year, with total purchases of bullion reaching 43.3 million oz, compared with 44 million oz in 2007.
“Amid the continued inclination to acquire safe-haven assets around the world, investor buying is projected to reach a record 52.3 million oz this year,” said CPM. “Continued volatile and weak financial and economic conditions are expected to be supportive of strong investment demand this year as well. Combined with short term and speculative activity, gold prices are expected to surpass last year’s record intra-day high of $1,033.90, seen on March 17, 2008.

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