GFMS, arguably the most respected precious metals consulting company, has just released its much anticipated 2011 Gold Survey. While the rather expensive 128 page report is not available for public consumption (yet), the gist is as follows: GFMS sees gold prices averaging $1,455 an ounce this year and sticking to a range of $1,319-1,620 an ounce, executive chairman Philip Klapwijk told delegates at the launch of its Gold Survey 2011. Klapwijk said the market had probably already seen the lows for this year, after prices slipped towards $1,300 an ounce in late January during a broad-based sell-off of commodities.Quoting Klapwijk: "Overall, we would not be surprised, therefore, to see gold break through $1,600 before the end of the year." Neither would Goldman, which needs to buy some more, thus expect a downgrade shortly.
Reuters summarizes the key supply and demand drivers:
- Total gold supply edged up a touch to 4,334 tonnes last year from 4,318 tonnes a year before, lifted by a 100-tonne increase in mine supply. Scrap and official sector sales fell.
- In 2010, mined gold production edged up to 2,689 tonnes from 2,589 tonnes a year earlier, its third consecutive year of gains and its highest year of output since at least 1998.
- China was the world's biggest gold miner last year, with 351 tonnes of production, followed by Australia, which mined 261 tonnes of gold.
- The United States was third, mining 234 tonnes, and Russia overtook South Africa as the number four miner with 203.4 tonnes. South African production fell 7.5 percent to 203.3 tonnes last year.
- Central banks turned net purchasers of gold last year, buying 73 tonnes. In the last decade's peak sales year of 2005 they sold 663 tonnes of gold, and sold 34 tonnes in 2009.
- Gold scrap sales were at elevated levels, reaching 1,645 tonnes in 2010, though this was below 2009's extremely high level of 1,695 tonnes.
- The United States was the single biggest seller of scrap gold back onto the market, with 143 tonnes of sales. China sold 138.2 tonnes of scrap gold, while Turkey sold back 122 tonnes.
- The main seller in the last 12 months has been the International Monetary Fund, which completed a planned sale which saw it dispose of 403.3 tonnes of gold.
- Inflows into gold-backed exchange-traded fund eased to 338 tonnes last year from 617 tonnes in 2009. This was more than outweighed by rising demand for coins and bars, however.
- Physical bar investment leapt by two-thirds to 880 tonnes in 2010 from the year before, by far the highest figure of the last 10 years and more than triple the figure recorded five years previously.
- Jewellery demand recovered in 2010 after the previous year's slump, rising 11 percent, but sales were still the second lowest of the last decade at 2,017 tonnes.
- Jewellery consumption including scrap was highest in India last year at 657.2 tonnes, followed by China with 451.8 tonnes. Both increased their buying from the year before.
- Consumption in the United States eased to 128.6 tonnes from 150.3 tonnes, while in Turkey it dipped to 70.6 tonnes from 75.2 tonnes. Italian consumption fell to 34.9 tonnes from 41.4.
- Net producer de-hedging slipped to 103 tonnes from 236 tonnes in 2009, the lowest figure since 2005.
- Industrial and dental gold demand rose 13.7 percent last year to 466 tonnes.
Bottom line, commenting on the outlook for 2011, Klapwijk noted, "the prospects for gold prices this year remain bright. Investors continue to be concerned about the outlook for inflation, with governments in general showing little appetite to tighten monetary policy significantly... Furthermore, growing price acceptance by consumers will help lift jewellery demand, while generated only a muted response from scrap. Together, these will help raise the support level in the gold market and provide a firm platform for investors to take gold higher. Overall, we would not be surprised, therefore, to see gold break through $1,600 before the end of the year."
Alas, we have gotten to a point where a conflicted hegde fund like Goldman, which talks its book on a daily basis, will likely have much more push on the price of gold. And with the firm now aggressively pushing the disinflation trade, following its downgrade of crude and copper, the precious metals will likely be the next to see the flush of weak holders.