Commodities | Aug 25 2008
By Chris Shaw
Gold prices have been hit hard in recent weeks as the US dollar has found renewed support. While this is traditionally bad news for precious metal prices, Standard Chartered continues to expect further gains in gold in coming months.
Any such move higher will be choppy given conflicting conditions and expectations of periods of strength in the US dollar, but the group suggests there are several factors supportive of the outlook. The first is the lack of any significant central bank gold sales of late. On an annualised basis, sales for the year are running at around 380 tonnes, which is well below the maximum allowed under the Central Bank Gold Agreement of 500 tonnes.
At the same time major world producers such as South Africa continue to report production problems, with year-on-year output to the end of June falling 12% in that country on the back of continued problems with power supply. While scrap sales have risen to offset this, Standard Chartered expects lower scrap sales going forward now that prices have fallen somewhat.
The metal’s correlation with the US dollar has strengthened of late and this should be another positive in the group’s view. With concerns over the health of the US banking sector continuing, it doesn’t expect the recent rally in the dollar to continue. As well, fears about the health of the financial system in general promote gold’s safe haven status, increasing its investment attraction.
This should in turn help boost holdings of gold via ETFs or exchange traded funds in the group’s view, which have fallen of late, but should see something of an increase if sentiment towards the metal improves. Demand is at least showing signs of improvement, with buying in India and Indonesia higher in recent weeks than has been the case in recent months, This is something that is expected to continue in coming weeks given important religious festivals in both countries in October.
Putting all these factors together, Standard Chartered has lowered its gold price forecasts marginally, with its September quarter average price now forecast at US$900 per ounce, down from US$925 per ounce previously and its December quarter estimate cut to US$925 per ounce from US$975.
This brings its 2008 average price forecast down to US$911 per ounce from US$930 previously, while it expects prices will average US$994 per ounce in 2009, with prices expected to be stronger in the second half of next year than in the first half.