GFMS Predicts New Gold Highs in 2010


"The honeymoon won't last forever."

The price of gold will likely rise above 2009's record of $1,226/oz this year, and could even climb as high as $1,300/oz if the global economic recovery proves sufficiently sluggish and new investment money continues to enter the market, Philip Klapwijk, chairperson of consultancy GFMS, said in Toronto on Wednesday.

However, he cautioned that the big role played by investment demand leaves the gold market vulnerable to a major correction if and when investors start looking elsewhere.

Because of the market's dependence on investment, the biggest threat to the gold price will obviously be the eventual shift to "business as usual" in the world's economies, Klapwijk said.

"The honeymoon won't last forever. At some point the scenario does change, and then the investment case for gold becomes less appealing."

For now, however, the outlook for the yellow metal remains rosy, with investment demand forecast to grow robustly through 2010.

GFMS believes the likelihood of a slow road to economic recovery is high, with the potential for a "double dip" this year in the U.S., Europe in Japan.

"We continue to be in an environment of zero or negative real interest rates, there are still very significant question marks being placed against the U.S. dollar in spite of the rally we've had in the last few weeks, [and] inflation expectations continue to rise.

"And this is creating a backdrop which remains pretty positive for gold investment," Klapwijk said.

GFMS has forecast an average price of $1 175/oz in the first half of the year, and expects gold will trade between $990/oz and $1,230/oz during the six-month period.

"And we do think there is a possibility for a significant correction in the next six months."

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