Gold to hit $2,000 within 12 months

Gold prices are expected to reach the $2,000 mark within a year according to some analysts, as investors pour into the safe-haven qualities of the yellow metal.

With the price of gold now firmly above the $1,600/oz level, the bulls have been quick to point out that this doesn’t mark the start of a ‘bullion bubble’, but rather just another step along the way to $2,000, a point which it is expected to hit within a year.

Independent research and fund management firm Fat Prophets has predicted that the price of the precious metal will reach $2,000 by the end of July 2012.

“I think the price of gold has a big 12 months ahead for a number of reasons. From the fundamental perspective, the supply and demand dynamics remain extremely supportive,” said Fat Prophets’ Managing Director Greg Smith.

Bank of America Merrill Lynch said in July that the recent strength in the gold price was not a sign of a ‘bullion bubble’, but believes that prices could remain sustainable in the $1,500-2,000 range in the medium term.

"Given global challenges of managing government finances, we believe that nominal interest rates are unlikely to increase substantially. This also means that real interest rates, which have been important gold price drivers, should remain low especially in developed economies."

According to the latest estimates from the World Gold Council (WGC), global gold demand in the first quarter of 2011 reached 981.3 tonnes, 11% higher than the 881 tonnes recorded the year before.

This increase translated to $43.7bn in value terms, up 40% from $31.4bn in the first quarter of 2010, helped by the widespread rise in demand for bars and coins, supported by an improvement in jewellery demand. “We believe that suitable conditions remain in place to ensure that investment demand will maintain its solid growth path in the coming quarters,” the WGC said in May.

The average gold price in the quarter hit a new record of $1,386.27, the eighth consecutive year-on-year rise.

“China’s appetite for gold has increased rapidly, with gold demand growing by an average 14% per annum since the deregulation of the market in 2011, a trend that has continued with the strong growth momentum witnessed in the first quarter,” according to the WGC. Gold demand in China jumped by 32% in 2010, even though gold prices rose by 25% (in the annual average local currency price).

India and China continued to drive demand in the first quarter of 2011, the WGC said, accounting for 63% of total jewellery demand.

This led UK-based bank Standard Chartered to suggest in June that the price of the yellow metal could soar as high as $5,000 by 2020, as a lack of supply is met with surging demand.

“There are very few large gold mines set to commence operation in the next five years,” according to analyst Yan Chen.

“The limited new supply comes at a time when central banks have turned from being net sellers to significant net buyers of gold. The result, in our view, will be a gold market in deficit, even assuming flat growth in demand. With the supply-demand balance so out of kilter, we see the gold price potentially going to US$5,000/oz.”