By Steve Fiscor, Editor-in-Chief
Increased uncertainty about the economic recovery pushed gold prices closer to record highs recently. At the end of August, Comex gold for September delivery closed at $1,248.30/oz. That was the highest recent price since June 28, when it reached $1,261/oz. According to the E&MJ Price Index, gold prices rose 6.7% during August. Since May, the average monthly price has hovered around the $1,200/oz level. So far, the cumulative average price for 2010 is $1,166.07/oz. Gold prices averaged $972.35/oz in 2009.
Gold prices typically rally during the autumn. Trading resumes after a summer break and the Denver Gold Forum places a spotlight on the metal for traders and analysts. Last year for instance, gold prices broke the $1,000/oz mark on September 8. It eclipsed $1,100/oz in November and $1,200/oz in early December.
Investment demand in 2009 exploded to surpass jewelry fabrication for the first time since 1980, according to the Gold Survey 2010, published by GFMS Ltd., an independent precious metals research consultancy. “The more than doubling of investment in value terms to almost $60 billion was partly due to familiar forces such as the dollar falling,” said Philip Klapwijk, chairman, GFMS. “However, it was powerful new drivers—fears over quantitative easing, perhaps even more so counter-party risk as long standing financial institutions collapsed—that got interest really moving.”
The survey highlights the complexity of overall investment, with certain areas such as physical retail investment or the ETFs booming early in the year, while the more speculator focused Comex futures market saw most of its gains in the closing months of 2009. And not all areas saw buoyancy as GFMS estimated that non-western bar hoarding more than halved last year.
The consultancy is quick to stress there was more to gold in 2009 than investment. The market for instance had to cope with the collapse in jewelry consumption to a 21-year low or almost half the volumes achieved at their peak in 1997 due to the combination of the onset of a global recession in conjunction with still elevated prices.
At the same time, scrap supply continued to surge on the back of profit taking at elevated prices and distress selling. According to GFMS’ figures, this left scrap at record volumes last year, making up almost 40% of total supply.
To get a complete picture, Klapwijk explained, one really needs to look at the physical market. “In the first quarter, when scrap rockets past not only jewelry demand, but also mine production, it’s easy to understand why the rally failed in the run-up to $1,000/oz,” Klapwijk said. “Fast forward to the fourth quarter, when the fundamentals aren’t looking so shaky, and investment has an easier job of getting prices over $1,200/oz.”