The Hindu Business Line : Gold prices may rise modestly

Although a strong rally towards the end of the year was possible, breach of the 2004 high to date of $427.25 was less likely to occur until safely into 2005.

On the other hand, the downside risk is seen as limited with the market unlikely to go below $390/oz during the remainder of the year.

These are some of the major findings of the first update of Gold Survey 2004 issued on Wednesday by GFMS Ltd, the London-based precious metals consultancy. Many of the demand and supply fundamentals will turn generally supportive over the second half of the year, the report said in justification of its price outlook.

While, on the supply side, central bank sales and old gold scrap are forecast to fall heavily, on the demand side, jewellery fabrication and producer de-hedging are seen as rising noticeably.

The supportive factors would mean stable prices and limited downside risk, given the buoyancy of offtake by India and the like in recent months whenever prices have come to look cheap, which in today's terms is sub-$400, a GFMS release quoting the consultancy's executive chairman.

While first half disinvestments was the prime cause of the rally topping out and prices subsequently retreating, the report sees the curtailment of physical offtake and a pick up in scrap at prices over $420/oz as having been important.

Drawing support from Indian statistics, it was noted that in January, when prices over $420 were common, bullion imports into the country slumped to under 30 tonnes; and by May when prices around $380 were common, imports jumped to over 80 tonnes.

Growing acceptance of prices in the $390-400 range and stronger global economic growth were also seen as important as it helped generate growth in jewellery fabrication of over 6 per cent.

Mine production fell by a hefty 84 tonnes or 7 per cent year-on-year in the first half of 2004.