And the glitter still goes on...

Discussion in 'Gold' started by ozxlnc, Dec 30, 2010.

  1. ozxlnc

    ozxlnc New Member

    Dec 16, 2010
    Likes Received:
    Trophy Points:
    And the glitter still goes on...
    Muzaffar Rizvi

    30 December 2010
    DUBAI -The outlook for gold remains bullish and with the global economy going through fluctuations, gold will be highly sought after commodity next year, experts say.

    The yellow metal will continue to shine in 2011 and may trade above $1,600 an ounce next year due to uncertainty over the stability of the global financial system. Low interest rates, deteriorating economic health of eurozone countries and sharp fluctuations in major currencies will also boost the safe-haven allure of the metal next year.

    "Gold market looks bullish and very positive as customers have got good returns in gold over the last five years. I believe the return has been almost 25 to 30 per cent per annum for most gold buyers. And this trend, I believe, will continue for years to come," Firoz G Merchant, Chairman, Pure Gold Jewellers, told Khaleej Times.

    2010 is proved to be a solid year for gold, as the metal rose approximately 27 per cent, after rising 24 per cent in 2009 and five per cent in 2008. From January to December 2010 the price of gold ranged from approximately $1,050 to $1,400 per ounce. February gold futures on COMEX hit a record high of $1,432.50 an ounce and spot gold peaked at $1,430.95 in recent weeks.

    Short-term outlook

    Investment analysts expect that the yellow metal may trade above $1,440 an ounce in the first two weeks of January due to economic uncertainty, volatile major currencies and high inflation levels in major economies.

    "In view of the existing economic crisis facing the world, gold makes a perfect safe haven for investors. The yellow metal prices have not posted a negative annual return since the year 2000," they said adding that the demand for gold would remain strong next year due to investors' appetite for the yellow metal.

    The World Gold Council, or WGC, released a strong outlook for gold demand for remainder of 2010. The council said in late November that investors' demand for gold is unlikely to wane given a market surge earlier this year that was "supported by heightened sovereign risk and currency worries."

    "Concern over fiscal imbalances and currency tensions will continue to support investment demand for gold. Aside from the recent additional $600 billion of quantitative easing by the United States, the weakening of the US dollar and associated fears of inflation, demand is also likely to be driven by higher gold price expectations as well as increasing availability and accessibility of gold investment products to retail investors," the council said in a statement.

    According to the council's Gold Demand Trends report, global gold consumption for 2010 will be higher than 2009 as a result of increasing consumption in India and China, sustained global demand for gold investment, together with growth in jewellery and industrial demand. "Total gold demand in third quarter was 922 tonnes, reflecting an increase of 12 per cent from same quarter in 2009. In US$ value terms, demand grew 43 per cent to $36.4 billion over the same period," the report said.

    The council said industrial demand has recovered back to pre-crisis levels of 110 tonnes, reflecting an increase of 13 per cent from third quarter of 2009.

    "The recovery of industrial gold demand to pre-crisis levels will continue to be sustained by the rise in demand for high-tech goods, such as the iPad and smart phones. Longer-term exciting advancements in the use of gold in nanotechnology, environmental and biomedical applications are also expected to drive demand," "Richard Holliday, Director, Industrial at the WGC, said.

    Bank Sarasin's latest commodity strategy report also suggests that investment demand will continue to hold up gold prices in 2011.

    "Investment demand will continue to buoy the gold prices next year," the report says, but also warns that a significant and sustainable upsurge in real yields is the biggest risk to the gold price.

    "Investors are advised not to undertake any more long-term gold investments, but to be prepared to wind up their gold positions when real yields start to climb noticeably over a long period of time. However for 2011, we think that the investment demand will hold up the gold prices," Eline Tanner, Commodity Strategist at Bank Sarasin & Company Limited, said.

    The price of gold has been mostly driven by investment demand in recent months. This is mainly reflected by the increasing quantity of gold held by exchange-traded funds, or ETF, which especially hold the yellow metal. A gradual increase in ETF gold holdings is also expected in 2011, the Bank Sarasin report says.

    "As long as real yields remain low, gold investments should continue to remain attractive," the report adds.

    Support of central banks

    Next year is expected to mark the end of a lengthy trend of official sector bullion sales, with central banks globally turning net buyers for the first time in decades.

    "The investment demand is also expected to grow stronger due to the unconventional measures adopted by the global central banks which could in turn inflame the inflation expectations of some investors in the medium to longer term," Bank Sarasin, a unit of Sarasin Group, said.

    "Central bank reserves have continued their upward trend over the last one and half years. In particular, China, India and Russia acted as buyers on the market," the Bank Sarasin said.

    In the six months to September this year, China's gold consumption recorded a 45 per cent surge to 273.7 tonnes, while India's gold demand grew 28 per cent to 394 tonnes. China's gold consumption is expected to grow faster after the recent de-regulation in the sector while its clampdown on property speculation may also prompt heavy investment in the metal.

    World Gold Council expects India to see record gold imports of 800 tonnes this year, market participant say there are signs of saturation in consumption in the top consumer market, setting the stage for China to overtake India as top consumer of the metal in the next couple of years.

    Impact on jewellery demand

    According to latest available figures from WGC, gold jewellery sales in the UAE jumped 17 per cent, or roughly $400 million, from $2.1 billion in the third quarter of 2009 to $2.5 billion in the third quarter of this year.

    The latest WGC report said that more people across the Middle East are buying gold bars and coins. "In the third quarter, retail investors in the UAE bought 1.6 tonnes of gold bars and coins, up 23 per cent from the same period last year," said the WGC report on gold investment trends in the Middle East. The report further says that shopping crowd in the UAE alone bought Dh2.72 billion ($741 million) worth of gold including gold coins, bars and jewellery items in the third quarter, 20 per cent more than in the same period last year.

    On the global front, the council said demand for gold jewellery in third quarter this year increased by eight per cent from same quarter last year, with four of the best performing markets India, China, Russia and Turkey accounting for 63 per cent of global demand. In value terms, global demand for the 12-month period ending September 2010 hit a record $137.5 billion, the council said.

    Chairman of Pure Gold Jewellers also ruled out any significant impact of high gold prices on jewellery demand and said higher gold prices renewed investors' confidence in the yellow metal.

    "Time and again gold has proved itself to be a safe haven. In times of uncertainty people turn to gold and we do not see the high prices impacting gold sales in a big way. Even when the prices are higher, customers tend to purchase gold in the hope that its value will appreciate even more. Also, over the past three years customers have only seen the price of gold increase; this has renewed their confidence that gold is a good buy at almost all price levels," Merchant explained.

    Contrary to this, Bank Sarasin said jewellery demand in recent years has suffered under volatile and rising prices and it remains at a relatively low level.

    "For 2011, a powerful recovery is not expected in the global jewellery demand because the price of gold is likely to remain expensive and global economic growth should weaken slightly," the bank said.

    Merchant said Pure Gold Jewellers recorded 30 per cent sales growth in 2010 compared to last year. "We have witnessed a remarkable increase in sales this year and we are on track for further growth in 2011," Merchant said.

    Talking about latest consumer trends in jewellery, the Pure Gold Chairman said diamond sales have done very well while gold and silver business have also done well.

    "Diamonds are all the time favourites and gold is a good investment, both have done well. Silver is becoming increasingly popular amongst the mid-market segment due to rising price of gold," he said.

    Challenges and opportunities

    Merchant said the challenge will be the rising price of gold and the opportunity is the increasing demand for diamond jewellery because of the rising gold prices.
    "Demand for next year will be sustained or even increase, depending on the improvement in the global economic scenario," he said.
    A bullion trader in Dubai said that the fundamentals for gold are also supported by the lack of significant increase in mine outputs during 2010, and a fall in scrap gold sales.
    "Demand for gold is expected to rise significantly over the next few months. Short gold supply will remain unchanged or drop. As such, high price will be a main feature of the future gold market," he said adding that the investors will certainly increase the gold component in their investment portfolios.
    About gold supply and pricing trend, the Bank Sarasin said over the past two years, gold supply has raised in response to the rising prices. "There will be a slight uptick in supply next year due to high prices, although this is unlikely to halt the upward trend in the gold price for the time being."
    A bullion trader said that Dubai is well positioned to benefit from expanding demand for gold. "Dubai has one of the most vibrant gold retail markets in the world. The city, which imports jewellery from all the major manufacturing centres of the world and boasts an incredible range of jewellery, will retain its position as a precious metal trading hub." [email protected]
  2. boston

    boston Active Member Silver Stacker

    Jul 7, 2009
    Likes Received:
    Trophy Points:
    Good read that reinforces what most here already suspect or know. Thank you.
  3. Guest

    Guest Guest

    I always have gold in my stack, even if only a token effort. I've read too much history and noted the relative value of gold during the hard times to rest easy enough to sleep without having it.

    I admit it... I'm a gold bug :)
  4. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

    Nov 15, 2010
    Likes Received:
    Trophy Points:

Share This Page