Volatile year ahead for gold

VM Group, the commodity consultants, has published the latest edition of its “Yellow Book”, in conjunction with Fortis Bank.

The group is forecasting a volatile time ahead for gold, with the metal having only a small production surplus, of 123 tonnes, in 2007 (equivalent to less than two weeks’ projected consumption).

The report notes that even small changes in, for example, the value of the US dollar or western and Asian economies, could plunge the market into deficit.

It also states that investor purchases will be an important contributor to a strong gold price in 2008, although it anticipates there will be no lack of investment activity.

Exchange-traded funds (ETFs) should continue to support demand, with the recent annual average of around 200 tonnes being carried forward into 2008.

Gold production for next year is expected to be at the same level as 2007, with China overtaking South Africa’s position as the world’s largest mined gold producer.

Higher retail prices and lower economic growth may keep jewellery demand level, although the investment jewellery market could see a flourish.

Jewellery demand in Europe and North America is expected to fall slightly in 2008; Asian demand is expected to recover to 2006 levels; demand in India is forecast to rise by 14% and in the Middle East, by 4%.

The fate of the US dollar remains central in any forecast and with the possibility of US interest rates falling to 3% by the end of 2008, the report argues that gold could reach $900 oz during the coming year.