A Different Take On GFMS' Survey

From the perspective of Mineweb, the results of the GMS survey as presented by Executive Chairman Philip Klapwijk were "cautiously bullish." The point about investment demand outstripping jewelry demand was repeated, but the write-up said that one's own opinions about gold determine how one takes it. Klapwijk expects investment demand to level off but stay strong this year and next.

Jewellery demand is beginning to come back again, but apparently aided by a further big increase in Chinese demand in the first quarter. Scrap sales are continuing at a high level, while investment demand, although still strong, may be beginning to flatten out - although Klapwijk expects a good level to continue through 2010/2011.

GFMS saw mine production rise last year for the first time in three years - this had been mostly negative or flat for around seven or eight years - but is still unsure whether this represents a trend or if it is a blip in a continuing downgrading of output. While GFMS sees another small increase ahead this year, Klapwijk feels that this may not be continued at least for the next few years, but expects mine output to remain pretty flat overall.

While there are thus still some big unknowns going forward it comes down to a gut feel as to whether the price will rise or fall on a pure fundamentals base and Klapwijk and GFMS favour the cautious increase scenario with possible weakness over the northern summer months, perhaps exacerbated by a period of relative strength in the US dollar, followed by a run up later in the year with the possibility of reaching perhaps $1300 by December - but not with any real confidence. Average price for the year is seen as around $1170.

There are, Klapwijk asserted continuing economic problems facing the western economies, but these could impact either way on the gold price. Economic uncertainty, the continuance of low or negative interest rates as the economy stubbornly refuses to rise out of recession - both could be considered positive for gold, but if there is a double dip ahead, as some fear, then liquidity problems in the financial sector could lead to a gold sell-off - as happened in late 2008 - although again this would probably not be as severe as the potential sell-off in other stocks and commodities!...

The entire report goes through what Klapwijk has to say at the Denver Gold Group European gold forum in its entirety. If there's any take-away, I believe it should be the overall unanimity amongst gold forecasters for this year. They seem to have settled upon a year of little gains but no overall bearishness.