Gold could reach $1,600 this year, says GFMS

Marketwatch. Written by Claudia Assis. Jan. 13, 2011.   View Original Article

SAN FRANCISCO (MarketWatch) — Gold futures could trade as high as $1,500 by midyear and $1,600 at the end of 2011, a metals consultancy said Thursday.

MarketWatch’s Mark Hulbert looks at whether the recent big jump and subsequent quick retreat in gold prices is actually a bullish sign for the precious metal.

Gold’s January correction is no indication the metal is permanently on its way down, although the first months of the year could disappoint gold bulls, GFMS said in a report.

Much of gold’s expected run-up in 2011 and early 2012 is likely to be “driven by still-low interest rates, poor returns elsewhere, the elevated level of government debts in Europe, the United States and Japan, and lastly nagging concerns over quantitative easing in the United States and its ramifications for the dollar,” the London-based consultancy said.

Since the start of the year, gold futures have fallen 2.5%, the combination of portfolio reallocations, a stronger dollar and easing concerns about the U.S. economy.

On Wednesday, gold for February delivery (COMMODITIES:GCG11) closed up $1.50 at $1,385.80 an ounce after a late-session reversal. Gold futures have lost 2.5% this year. SPDR Gold Trust (CONSOLIDATED:GLD) , the biggest bullion exchange-traded fund, is down 2.4%. Read more on gold in Metals Stocks.

Support won’t come from jewelry demand, GFMS forecast. It expects consumption to decline by 7% in the first half of the year.

An uptick in jewelry and bar purchases, particularly in Asia, could emerge following any price dips, providing some support for the physical market, GFMS said.

Behind gold’s 30% rally last year, the consultancy said a recovery in jewelry demand; trends in scrap supply; and purchases from central banks offset mine production and producer de-hedging.

The official sector swung to net purchases of almost 90 metric tons in 2010 from net sales around 30 metric tons in 2009, the consultancy said.

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