GFMS: Gold May Still Top $1,300

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"Economic conditions still favor investment growth—likely into 2011."

GFMS said Wednesday that the gold price could still surpass the $1,300/oz. mark in the Q210, driven by strong growth in investment demand.

"The higher price would be aided by physical markets adjusting to higher price levels, as indicated by the rebound in fabrication demand and the drop in global scrap supply in H110, in spite of considerably higher average USD gold prices," said GFMS Chairperson Philip Klapwijk.

The consultancy believes that, in the absence of a major change in economic outlook, gold would be "well supported" between $1,150/oz. and $1,200/oz.

Klapwijk said, even though progress to $1,300/oz. was dependent on even higher inflows from investors, economic conditions still seem to favor investment growth over the balance of the year—probably continuing into 2011.

However, Resource Capital Research was "moderately bearish" on the gold outlook, saying recent records were driven by the words "crisis" and "banks" associated with the European debt crisis.

"Take away the crisis mentality, and gold looked precarious," Senior Analyst Tony Parry said, noting gold was likely to trade below $1,200/oz. through 2010.

Klapwijk also noted that, given low inflation in all major economies and tough fiscal measures being introduced in many countries, any serious monetary policy tightening in the U.S. and Europe would quickly transform the investment outlook and gold price, even if that currently appear[s] "remote."

He added that some of the major supply and demand trends were unfolding this year.

GFMS expected an increase in gold supply in 2010 due to the IMF program boosting overall official gold sales and further mine production growth, which together would offset a marginal drop in global scrap supply.

"On the demand side, fabrication demand, dominated by jewelry, is forecast to recover some of the ground lost in 2009. . .YOY growth is expected to slow in H210 owing to higher gold prices."

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