More Highs Ahead for Gold?
Gold is seen as a safe haven for investors, but with so many factors affecting its price, the yellow metal has seen a lot of movement recently.
Demand for gold comes primarily from two markets: the international investment market – where the most precious of metals is viewed as a reliable constant at times when currencies and stock markets may be seen to be unstable – and the more physical market of jewellery fabrication.
The latter has been on a steady decline over the past five years. According to the World Gold Council, global demand for gold for jewellery consumption in 2009 was 20% lower than the previous year – the single biggest annual decline on record – and 50% down on 2005 levels. The trend, however, seems to be reversing, as manufacturers and buyers of gold jewellery start to accept higher gold prices.
The international investment market remains the more obvious influence on the gold price, with factors such as the strength of the US dollar, inflationary fears and various central banks’ asset diversification plans central to demand. In December spot gold cleared $1200 an ounce, before a rather sharp correction, but analysts have begun forecasting a breach of $1300 an ounce this year, with $1000 looking like the new long-term floor for the gold price. [1]
Bullion hit a six-week high of $1144 an ounce on Wednesday 3 March [2], after returning record high prices in both euros and sterling on Monday 1 March. Currency weakness remains probably the strongest factor affecting the gold price at the moment, and with economic recovery prospects in Europe weighing on both the euro and the pound, this has been reflected in these denominated prices. This year, the sterling price of bullion has climbed more than 10% against spot gold, while gold in euro terms is up 8.1%.
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Source: [1] iafrica.com (26 February 2010), [2] Reuters News (4 March 2010)