LONDON, Dec 13: Heavy demand for gold from Russia, China, India, the Middle East and possibly the United States is likely to push the price up to a record high of $650 an ounce by the end of 2006, a fund manager told Reuters.
In the United States, where demand for gold is about half that of Europe, concern about the impact of the changeover at the millennium boosted gold demand in 1999, and fear could at some time be a factor again, Frank Holmes, chief executive of US Global Investors, said.
If fear takes hold the price of gold could jump faster than people are expecting, he told Reuters in an interview.
Historically the highest price for spot gold was seen in 1980 at $850 an ounce and recently Japanese demand has pushed prices up over $540 an ounce, a rise of nearly 24 pc so far this year.
Most of the demand has come from fund managers looking to diversify their portfolios into precious metals which have little or no correlation to stocks and bonds and central banks swapping dollar reserves for gold. Emerging market consumers are also buying more gold jewellery.
The supply coming out of gold mines has been falling for the past couple of years and will continue to fall to the end of the decade. The birthing process to bring new supply on stream can take 10 to 15 years.
GFMS expects a six per cent rise in gold demand to 679 tons compared with 641 tons in 2004 in the Middle East.
But Holmes thinks that a trigger for another lurch higher, towards $650 an ounce could be a sharp rise in demand from consumers in the United States.
Americans become gold buyers out of fear. In 1999 everyone was worried that at the turn of the millennium everything would fall out of the sky. Americans bought 2 million ounces of gold eagle (coins) that year, he said.
US demand for gold is likely to rise just one per cent this year to 251 tons and European demand to fall six per cent to 533 tons, according to GFMS.
If European central banks hadn’t been selling gold it would have been at $650 already, Holmes said, adding that if they accelerate their gold sales then price rises could be limited.
