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Gold price seen falling in 2001
19/04/2001 19:42 - (SA)
Sara Marani
London - Global financial and economic changes mean the dollar price of gold is likely to fall over the course of this year, industry consultants Gold Fields Mineral Services (GFMS) said on Thursday.
GFMS said in its Gold Survey 2001 the probability had grown of gold moving out of the narrow $256-$273 an ounce trading range of the first quarter.
"A core trading range of $255-$275 is something we can expect to see going forward," GFMS Director Paul Walker said at the annual review's launch.
"On balance, and assuming the slowdown in the US and world economies does not spill over into a full-blown financial crisis, the risks are more to the downside."
At 15:40 spot bullion was trading at $263.30/$263.80 versus $261.00/$261.30 at the New York close.
GFMS said the key to higher prices, at least in the short term, lay in renewed investor interest in gold.
"But it remains to be seen whether the ramifications of the latest stock market corrections will be sufficient to induce a new wave of private sector buying," the consultancy said.
"Although inflation...has begun to rise, it appears to be well off the levels required to get investors seriously interested in the yellow metal."
Disinvestment
Several factors - including a strong dollar and transparent official sales - had been weighing on the market, but disinvestment had played a major role.
GFMS estimated disinvestment of around 291 tonnes in 2000 - the third highest level in the past 10 years - and singled out three key reasons for the large-scale physical selling.
The first was the rise in the euro gold price, which was up by nearly 16% on average year-on-year. Secondly, underlying the incentive to sell was a sense that interest in bullion among the public in Europe had waned. Finally, post-Y2K disinvestment in North America had contributed to total selling last year.
Fabrication demand flat
Total gold demand fell by just over 200 tonnes to 3946 tonnes last year, largely due to the disappearance of net investment from the demand side, while fabrication demand totalled 3739 tonnes, just five tonnes down on its 1999 level.
After three years of growth, fabrication in North America fell back sharply. That loss, however, was almost entirely made good by a strong recovery in the Middle East.
The greatest overall demand change was in coin fabrication, which collapsed to 46 tonnes last year from 133 tonnes.
By contrast, jewellery fabrication rose, though by less than 1% to 3175 tonnes. Gains mainly from an export-led recovery in Turkey plus strong demand in South Korea and Thailand outweighed losses in other countries.
Gold use in electronics was up 15% to 283 tonnes as most of the top 10 fabricators of electronic products recorded double-digit growth last year.
Bar hoarding fell by over 40 tonnes to 198 tonnes last year. That was chiefly driven by the fall in Japanese interest as low and stable yen gold prices meant investors looked to other markets, the report said.
Gold use in dentistry was up 5% at 69 tonnes, while other industrial and decorative applications absorbed 105 tonnes, with strong demand in India contributing much of the 4% growth last year.
The report said for this year an anticipated US economic slowdown could represent a threat for gold - the danger being sharply lower fabrication demand, especially in jewellery.
Mine supply flat, hedging gone
Global mine production in 2000 was essentially flat, rising by less than 0.5% to 2573 tonnes - setting a new record - with production rates forecast to level off as new mines continued to replace output lost at marginal operations.
Supply figures were hit by a swing in producer hedging away from net supply of 506 tonnes in 1999 and towards accelerated demand of 10 tonnes. This was balanced by an almost equally large swing from implied net investment of 170 tonnes in 1999 to net disinvestment of 291 tonnes last year.
For 2001, GFMS forecast producer and investor behaviour to converge as gold mining companies were expected to increase moderately their hedge books while the scale of private disinvestment should diminish.
Official sector sales, a dominant feature behind gold's price moves, rose year-on-year to 471 tonnes versus 464 tonnes the previous year.
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