2010 Gold Price Vulnerable to Downward Correction-S&P


"Standard & Poor's has increased its metals price assumption by about 30% this year. . ."

Standard & Poor's has increased its metals price assumption by about 30% this year, citing higher spot and futures prices, "which in most cases have rebounded strongly in recent months."

S&P analysts have also raised their assumptions for 2011 by about 30% and for 2012 by about 20%.

The analysts raised S&P's gold price assumption by 13% from $800 per ounce to $900/oz this year. Gold price assumptions were raised by 23% from $650 to $800 for next year and by 12% from $625 to $700 for 2012.

In a recently published analysis, S&P said, "Investors seeking a hedge against inflation risks and uncertainty in the financial markets continue to support gold prices. According to market figures, however, investment demand exceeded jewelry demand in 2009, and appears to have become a stronger influence on short-term prices."

"We therefore expect prices to remain volatile, and vulnerable to a downward correction," the analysts cautioned.

Copper price assumption for this year was increased 25% from $2 per pound to $2.50/lb. Price assumptions for 2011 increased by 29% from $1.75 to $2.25 and by 21% from $1.65 to $2 for 2012.

"Copper continues to exhibit relatively favorable demand and supply fundamentals compared with other base metals," the analysts said. "This reflects a market that appears to be in broad balance, with declining ore grades and a lack of new near-term projects constraining supply.

"We continue to believe that market conditions will improve over time, but this requires better supply discipline, and sustained positive demand trends," they concluded.

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