Gold could touch $370 per ounce

Gold prices are likely to be majorly influenced by the Iraq-US issue this year and it is forecast that the price could shoot up to $370 per ounce. It is also expected that an average price for the first half of this year could be $330 per ounce, down on current levels but up 4 per cent on the second half 2002 average.

Philip Klapwijk, managing director of Gold Fields Mineral Services, while warning of possible volatility in the global gold prices said, "If the Iraq crisis blows up into a lengthy war, we could easily see the market over $370. On the other hand, if the whole thing turns out to be a damp squib and investors bail out, below $310 is on the cards."

As regards the outlook, the report cites continued optimism amongst the producer community and shareholder pressure as likely factors to dissuade players from increasing their hedge positions in the current year.

Given this and assuming that producers continue to deliver into positions, GFMS anticipate a further 135 tonne net decline in the global hedge book in the first half of 2003.

Sustained de-hedging and renewed investor interest which had been the chief factors behind gold's actual price rise in 2002 will continue to be the main drivers for the gold price rise in the year 2003, the precious metals consultancy said in its latest report on the Gold Survey 2002.

Jewellery fabrication which fell 12 per cent to 2,704 tonnes in 2002 with losses seen in all the major fabricating regions, especially India.

The consultancy is expecting only a partial recovery of 4 per cent in the first half of 2003.

This outlook rests on one major proviso, said Klapwijk adding, that "if we don't see prices easing back to more like $330 and instead they hold at over $350, we could easily see first half fabrication slumping below last year's low levels."

A good recovery is forecast in India in first half 2003, if only in comparison to a poor first half 2002 and provided prices ease back below $340, the report said.

Klapwijk said that GFMS believe a marked rise in investment last year was crucial in explaining gold's 25 per cent intra-year rise, the largest percentage gain since 1979.

"Our current estimates show investment as having more than doubled but we are being cautious here – it's possible the actual figure would have been much larger still."

GFMS see supply as having been less critical in determining price moves last year.

Klapwijk commented: "Mine production was down but by less than 60 tonnes. We'll probably have to wait until at least 2004 before falls in mine supply get more interesting."

Official sector sales were also estimated as broadly flat last year though the consultancy does point out the possibility that sales in 2003, outside of Europe, could see an uptick in response to recent price gains.