MONTREAL (Reuters) – Gold’s rally will extend beyond $2,000 an ounce in the next year, but won’t match the record-breaking 50 percent surge of the last 12 months, according to an annual survey of gold investors and analysts at the world’s biggest bullion traders event.
With no let up seen in the financial markets uncertainty that fanned the safe-haven investment spree, bullion is expected to rise to $2,019 an ounce by November 2012, according to an anonymous survey of delegates at the conclusion of the London Bullion Market Association’s (LBMA) annual conference on Tuesday. That is about 12 percent above current levels.
If history is any guide, the consensus view from the biggest gathering of gold market traders, experts and users may prove too conservative — for the past three years, prices have outpaced the survey. A year ago delegates predicted gold would rise to $1,450 in 12 months; on Tuesday it hit $1,800.
Most were optimistic on the outlook in spite of the past month’s extraordinary volatility, which has caused some traders to question gold’s credentials as a haven of stability. But few expect a repeat of the past year’s torrid rally.
“We’ve heard so much about the perfect storm that has driven gold to where it is now, that the odds of it increasing a similar amount have to be a lot less,” Robin Bhar, an analyst at Credit Agricole, told Reuters at the conference.
“There are good reasons why gold has been taken to where it has, but can we really assume that those factors are going to remain, for it to power on to $3,000, $4,000? We are assuming global GDP will grow and the fear factors will lessen, so there will be less reason to be owning gold.”
Well over 500 analysts, traders, fund managers, refiners and miners, as well as official sector and wider industry delegates, attended the meeting, one of the most significant in the precious metals calendar.
Attendance at the meeting has swelled as gold has become an increasingly sought-after asset in recent years, with prices hitting a record $1,920.30 an ounce on September 6. They have since retreated, however, and are down 2.5 percent so far this month after a period of intense volatility.
The view was largely similar at a simultaneous conference of major gold miners halfway across the continent, in Colorado Springs, where executives from the likes of Newmont Mining Corp (NMC.TO: Quote, Profile, Research, Stock Buzz) (NEM.N: Quote, Profile, Research, Stock Buzz) and AngloGold Ashanti Limited (ANGJ.J: Quote, Profile, Research, Stock Buzz) saw prices rising to $2,200 an ounce and beyond.
“I’m a big believer that all of the ingredients for a higher gold price are there: geopolitical risk, economic uncertainty, inflation,” Yamana Gold (YRI.TO: Quote, Profile, Research, Stock Buzz) Chief Executive Peter Marrone said on Monday. “It just seems natural to me for gold prices to go to substantially higher levels.”
STRETCHED, BUT NOT TO BREAKING POINT
Analysts have suggested this volatility pointed to overstretched conditions, but delegates disputed that it marked the start of a deeper correction.
“The higher levels of volatility is a function of increased economic uncertainty… but it doesn’t portend a reversal of the gold market,” HSBC analyst Jim Steel, who has a 2012 gold forecast of $2,025 an ounce, said on the sidelines of the conference.
“The macroeconomic climate remains positive for gold. The fact that there’s a high level of volatility in the market doesn’t take away from its safe-haven status. You’ve got to look at it over time compared to paper assets. If it were treated as a currency, it would have outperformed every other currency in the last 12 months.”
John Fallon, president of hedge fund Pia Capital Management, said gold is “in an orbit by itself” among commodities and remains his favorite investment in the sector, due to its high liquidity and the support offered by solid physical demand.
“Gold still has our undivided interest,” he told Reuters at the conference. “We favor both the (gold) ETFs and the actual spot OTC market.”
There were few outright bearish views.
Christoph Eibl, CEO and founding partner of the $2 billion Swiss commodity hedge fund Tiberius Group, was a rare voice of stern caution, warning that gold could fall back below $1,000 an ounce in line with production costs for miners.
But even Eibl, who considers himself a converted contrarian after years as an unabashed gold bug, wasn’t prepared to bet big against bullion’s newfound popularity.
“We know it’s too dangerous to stand in front of a truck that may run you over,” he said.
Unsurprisingly, delegates expected leading gold consumers China and India to remain main demand drivers for the yellow metal, with the World Gold Council estimating that Chinese demand could grow 10 percent this year.
Chinese consumers are willing to spend more on gold jeweler as product quality and disposable income increase, and due to the investment function of gold, Wai-Chan Chan, a partner at China’s OC&C Strategy Consultants, said.
Among other precious metals, delegates forecast a platinum price of $2,163 an ounce in November next year, giving it a touch more upside than gold from its current price near $1,770 an ounce. Palladium was forecast at $826 an ounce, compared to its current $710.
Platinum group metals prices will have to rise, or the rand to weaken, to ease pressure on South African platinum miners, Aquarius Platinum chief executive Stuart Murray argued in a well-received presentation on Monday.
Once tax, royalties, costs and investments were taken care of, he said, shareholders and capital providers were seeing a return of less than 3 percent.
“The reality is that for us, for the risks that are taken, for the effort that goes into mining an ounce of platinum, returns greater than 3 or 4 percent are needed,” he said.
Delegates forecast silver prices at $47 an ounce next year.
Silver was favored by Claymore Investments president Som Seif, who argued in a presentation on Monday that rising demand from the industrial and investment sectors and supply constraints argued for higher prices.
However, analysts said investors were likely to remain wary of silver after its sharp correction from record highs earlier this year. Prices lost a third of their value in the six trading sessions after they peaked near $50 an ounce in April.
Nonetheless, the Royal Canadian Mint said its silver bullion sales were on track for a 30 percent rise this year, taking them to 25 million ounces.